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Hedging for RMB appreciation

Original scenario
US Company (US Ltd) is sourcing products from China Company (C Ltd)
  • In July 2007, exchange rate of USD to RMB was 1 : 7.55
    • US Ltd made a purchase for the amount RMB 1,000,000;
    • Amount equivalent to approximately USD 132,450;
  • In July 2010, exchange rate of USD to RMB was 1 : 6.77
    • US Ltd made a purchase for the same amount RMB 1,000,000;
    • Amount equivalent to approximately USD 147,710.

Based on the above scenario, US Ltd suffered a decrease in value of USD 15,260 due to appreciation of RMB over the years.

New scenario
Setting up a Hong Kong Limited Company (HK Ltd) with RMB bank account in Hong Kong to conduct sourcing activities in China.
  • In July 2010, exchange rate of USD to RMB was 1 : 6.77
    • HK Ltd exchanged RMB 1,000,000 and kept in HK Ltd bank account;
    • Amount equivalent to approximately USD 147,710
  • In July 2011, exchange rate of USD to RMB was 1 : 6.46
    • HK Ltd made a purchase of RMB 1,000,000 and settled the transaction with its RMB maintained in its bank account;

Based on the new scenario, HK Ltd saved around USD 7,089 since it purchased RMB at a lower exchange rate.

Remarks
Please be aware that there may be tax implications for profit gained from currency exchange. Therefore, consultation should be addressed to both HK and Oversea specialist in this regards.

The above information is for general guidance on matters of interest only. AsiaBS is not responsible for any mistakes or omissions, or for the results obtained from the use of this information.

Before any decision or action, please for professional advices.
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AbacusHKCPA - Certified Public Accountants base in Hong Kong (HK) - ACCA, HKICPA, providing services of

company formation, financial management, business advisory, tax planning, auditing and accounting.