Impact of Interest Rate and Exchange Rate Changes and Inflation on Companys Profit and Response Measures

The Groups interest rate risk mainly comes from USD liabilities incurred to support operating activities. In recent years, the USD benchmark interest rate LIBOR/TAIFX has fluctuated greatly. The Finance Department regularly monitors current and forecasted changes and manages interest rate risks according to market conditions. Meanwhile, timely adjust the loan tenor and interest calculation method (floating or fixed) to effectively control interest expenses.

The Groups electronic parts and components are mainly sold in Asia. The Groups subsidiaries are located in Asian countries and face exchange rate risks in multiple currencies. However, the primary transaction currency of the Groups purchases and sales is USD and the exchange rate risk is mainly from the US dollar. Response measures:

  • Using the US dollar as the sales and purchase price and also the AR collection and AP payment currency. By using the same currency in sales and purchase, the resulted foreign currency assets and liabilities can offset against each other to achieve natural hedging results.
  • Adopting the unified exchange rate evaluation mode in the Group as the accounting exchange rate. The Finance Department uniformly publishes the Groups standard exchange rate accounting basis on the internal website every day for the business and procurement related departments to keep up with the latest exchange rates and obtain better exchange rate quotes for orders.
  • The Finance Department observes the market exchange rate dynamics and prices, based on the exposure position of the Groups foreign currency assets and liabilities and its foreign exchange costs on the book, and adjusts the foreign exchange exposure position and resulting exchange profit and loss through derivative trading when necessary.

In terms of inflation, the Group pays close attention to fluctuations in market prices and maintains good interaction with suppliers and customers to avoid significant impact on the Group due to inflation.

Overall, the Group will adopt a sound and conservative risk management principle in the future, and immediately assess and respond to changes in interest rates and exchange rates and inflation.

Policies of Engaging in High-Risk, High-Leverage Investments, Lending to Others, Providing Endorsement and Guarantee, and Derivatives Transactions, Profit/Loss Analysis, and Future Response Measures

The Group only focuses on the operations in the industry, and does not engage in high risk, highly leveraged investments. All investments are carefully evaluated and executed. The Groups engagement in lending and endorsement guarantees is conducted in accordance with the provisions of the “Regulations Governing Loaning of Funds and Making of Endorsements/Guarantees.” The purpose of the Group engaging in derivatives trading is to hedge foreign currency denominated financial assets or financial liabilities.