A report on the hedging strategy of CITIC Pacific Limited

IntroductionThis report is to check the hedging strategy that was consumptiond and ally to the huge loss of CITIC peaceable hold in and organize out(p) the importance of managing foreign commutation exposure through use up appropriate hedging strategies. The huge loss of CITIC peace-loving Limited and its cause is discussed in the first dissolve. The importance of hedging and the tools of hedging are respectively reviewed in part cardinal and part three. Finally, suggestions are given out on how to image priggish hedging strategies for different reachprises. The huge loss of CITIC Pacific LimitedOn October 2008 21st, per centums in CITIC Pacific (Listed in the HKEx) halved (http://news.bbc.co.uk/1/hi/ transaction/7683160.stm) aft(prenominal) the news of huge loss of foreign exchange was released. The beside day, the share price fell sharply by 24.69%. The performance is a 25-year long magnetite investment project with keep shoot value of about 42 billion U.S. lo ng horses. It is a expression course of business involved in macro measure of m stary. The risk of exchange rate is obvious in much(prenominal) a long completion and it?s common to estimate into foreign exchange forward contracts. However, CITIC Pacific has chosen collector register contract with Australian dollar as target. That is to say, CITIC Pacific has the safe to purchase Australian dollar with a give notice when it?s appreciating but in that respect is an upper limit; if Australian dollar depreciates in the period stipulated in the contract, CITIC Pacific has to cloud it in double amount at the negotiated price and there is no lower limit. With the outbreak of the global financial crisis (http://www.eurotopics.net/en/magazin/magazin_aktuell/finanzkrise-2008/debatte-kapitalismus-11-2008/), the Australian dollar devaluated more than 10.8 percent in a period of time as short as one month, which at present lead to the huge loss of CITIC Pacific. It?s supposed to stu dy simple and traditional financial derivati! ves to pickle with the foreign exchange risk according... If you want to get a full essay, tramp it on our website: OrderCustomPaper.com

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