Exchange rate Change affects Jiangsu textile enterprise
Source: Fibre2fashion Date: 2007-01-16
"Constant changes in RMB exchange rate in 2006 certainly had big impact on our company, but not fatal. We still achieved some profits after mentally preparation for the changes in exchange rate" said Mr Yao, manager of finance department from Jiangsu Hongye International Group.
The changes in the exchange rates are uncertain, it takes some time for the payment of goods to reach the company’s account after the shipment. When the payment comes, the exchange rate has changed, the bank will transfer the US dollars into Renminbi according to the exchange rate by the day, so the currency exchange rate risk is all on enterprises. "Originally one dollar can be exchanged for 8.27 yuan, now it is below 7.8 yuan, the profit margins have been compressed." Yao said.
The Group chairman Liu Sui Chi said, "The monthly export amount of our Group is over US $20 million. Now exchange rate has been decreased from 8.07 from the beginning of the year to below 7.8. We lose nearly 0.30 yuan on one dollar, the annual losses would be close to 100 million yuan, if we do not adopt any means to circumvent the risks.
Fortunately, the enterprise has managed to control the losses to the minimum through flexible adjustment in product structure and business contracts.
Mr.Yao does not approve monetary policy. "Last year we tried many types of financial instruments, such as advanced banks negotiation and buying forward foreign exchange, but experience showed that we only paidtuition.”
Generally speaking, the enterprise has mastered more means to avoid the risk of renminbi exchange rate, and the profits would not be greatly affected in the next few years.
