Export Textile Enterprises Take Measures To Deal With Exchange Rate Risks

In April 10th, the RMB appreciation continued to break through the 7 mark against the US dollar.

For export textile enterprises priced in US dollars, the sales profit margin will drop by 2%-6% when the RMB exchange rate appreciates 1%.

Under the expectation of RMB appreciation, export textile enterprises take effective measures to shorten exchange quotas, strive for non US dollar quotations, flexible use of financial instruments and other methods to deal with exchange rate risks.

It is understood that foreign importers generally do not directly face the terminal market, they distribute to the downstream dealers in batches, accounts are mostly settled in US dollars, so they prefer to use the US dollar.

Moreover, they are more willing to use the US dollar to pay for their currencies against the expected appreciation of the US dollar.

In this case, more and more enterprises begin to try to settle accounts in euros. If customers insist on using US dollars, the validity period of the offer will be limited to 3 months.

A textile exporter said that the date of signing the order is to minimize the validity of the offer.

Normally, the monthly price of the 1-3 monthly newspapers is now shortened to 10-15 days, that is, the price is agreed with the customer only within 10-15 days, and the price will be adjusted according to the actual exchange rate at the end of the term.

In addition, there is a common practice to add relevant clauses in foreign trade contracts, for example, if the exchange rate changes exceed a certain range, negotiate the price separately or undertake the corresponding agreed risk separately.

However, for most enterprises, changing the way of settlement is not as simple as imagined.

Some enterprises say that currency settlement involves the adjustment of sales market and bargaining with foreign importers.

In addition, China's domestic banks multi currency settlement procedures are also complex and difficult to operate.

Against this background, efforts by some enterprises to use financial derivatives to slow down the "appreciation shock wave" are more concerned.

Shen Zhimin, the business manager of Zhejiang's Limited by Share Ltd, said that currently, Kay has avoided the risk of appreciation by buying the bank's financial hedging products.

Nanhai Textile Export Co., Ltd. Mr. Tan said that the export textile enterprises are currently using the financial instruments of exchange rate to manage risks.

Specifically, the exchange rate risk can be circumvent by fixed costs or gains such as forward foreign exchange pactions, currency options, exchange rate futures and other financial instruments.

Now most enterprises adopt the method of forward settlement and sale, and enterprises can advance the exchange rate in advance for the foreign exchange receipts and payments that will happen in the future.

It is understood that the foreign exchange business is relatively simple and does not need to pay any fees. It only needs to apply for a margin of 3% of the paction volume.

As long as the settlement price is higher than the expected appreciation rate, we can successfully avoid the risk of RMB appreciation.

In addition, some export enterprises in order to avoid the risk of RMB appreciation, the foreign banks in China borrowed part of the US dollar loans, with a view to buying RMB and using US dollars in less Renminbi after the appreciation of RMB.

This approach is equivalent to the early "settlement of foreign exchange".

Although the interest rate of US dollar loan is very high, considering the influence of RMB appreciation, we can offset the loss of US dollar compared with the high interest rate of RMB.

When the amount of the bill is relatively large and is paid by a longer term letter of credit, some enterprises choose to move forward the time of settlement as far as possible.

For example, if a 6 month long term letter of credit is received, it can be discounted by the importer's issuing bank, and the bank will be discounted for a period of 6 months.

In this way, the amount of the acquired letter of credit can be converted into Renminbi at the spot exchange rate and deposited in the bank for half yearly time deposits.

6 months later, the US dollar of the issuing bank is returned to the discounted principal. After the deposit expires, interest is paid on the purchase of foreign currency by a portion of the RMB. The following Renminbi amount is the income earned by the foreign exchange.

Of course, the use of financial instruments to avoid the risk of RMB appreciation is only an expedient measure, not a long-term policy.

In the face of changes in the form of trade, experts still advise exporting textile enterprises to adjust and optimize their business structure and product mix in a timely manner so as to improve their technological content and added value. Powerful enterprises should actively invest and build factories in a mature market.

As Chen Deming, Minister of Commerce, said before, "investing abroad is the key point to solve the problem of RMB appreciation pressure in the future."