Valin Group's Overseas M & A To Use Derivatives Manage Foreign Exchange Risk

After our exchange rate reform, the RMB rate fluctuates not more frequently, but higher frequency, which makes domestic enterprises stepping in foreign exchange markets, face greater threats. Unfortunately, the major corporations can not keep pace with the times, whose methods of the risk management are still path-dependent on them how they did before RMB rate formation mechanism. However, the exchange risk has already become one of signifficant factors affecting operating performance. Therefore, it is urgent and necessary that enterprises should strengthen the exchange risk management to meet the futures economy development. Wielding derivative products to avoid the exchange risk has become the golden rule for enterprises in the world. Moreover, reasonable utilization of derivation tools can maintain value of capital, which is common way for the top 500 enterprises in the world to enhance the core competitiveness.This thesis aims at how enterprises use the finance derivative products to successfully manage the exchange risks. Firstly, the kinds of exchange risks which enterprises suffer from and the types and functions of derivative products are introduced, and the importance of adopting derivative products against the exchange risks is stressed. Secondly, based on the theoretical basis of the derivative products employed to keep the enterprises from the exchange risk, one of few successful cases of Chinese corporations'large-scale takeover bids abroad in 2009, Valin Group's overseas acquisition of assets of the third big iron ore producer FMG in Australia is taken as the case; The case analysis is began with analyzing fundamentally and technologically the trend of exchange rate, because of estimating the share purchase funds increased on delivery date; then, four schemes of employing derivative products are presented, and by means of comparisons among them and taking account of the other conditions, option is chosen to zero the risk by Australian Dollar appreciation, which makes Valin Group fix the acquisition cost and successfully gain the stock right; meanwhile, the internal-and-external supporting measures by which Valin Group succeeded are analyzing; lastly, against the rise risk in interest rate of US dollar of its following repayment, the floating-fixed swap is put to use, which saves some expenses for Valin Group. Finally, grounded on the case analysis and drawing on the experience of Valin Group, some suggestions about how Chinese enterprises to discern the risks and use derivative products to effectively manage the exchange risks are put forward.