The Financial Hedge Alternatives for Taiwan Power Company

• Main Authors: Chiou-Ling Chen, 陳秋玲
• Other Authors: Her-Jiun Sheu
• Format: Others
• Language: zh-TW
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/92895210968698427454

碩士 === 國立交通大學 === 經營管理研究所 === 93 === Taiwan Power Company (TPC) has been restrained from raising electricity price for a long time. In addition, the capital expenditures are increasing and production cost is also rising recently. Return on shareholder’s equity has decreased to 1.33％ in 2004, a record low. TPC may have negative earnings for the first time in 2005. Therefore, this study explores the hedge alternatives that might assist TPC to lock cost and achieve the goal of stable earnings. The research methods and purpose of this study are as below： 1. Collecting TPC’s financial statements and literatures to understand TPC’s financial situation and to recognize the volatility risks of interest rate, foreign exchange rate and fuel price. 2. Carrying out sensitive analysis to see how TPC’s profit and loss is affected. 3. Collecting recent local trading situation of derivatives and concerned accounting regulations which should be abided by, and interview people with expertise to suggest both proper financial hedge alternatives and risk management for TPC’s reference-need. The conclusive remarks and suggestions are as follows： 1. As to interest-rate risk of long-term loans, TPC should adopt natural hedge and, according to circumstances, hedging with interest-rate swaps. 2.For foreign exchange- rate risk concerning abroad-procurement of equipment and fuel, TPC should adopt natural hedge and, according to circumstances, hedging foreign exchange risk with forward contracts, also a derivatives. 3. Regarding to risk of generation fuel price at present stage, TPC’s hedge could be tied to long-term contract, but it should consider the use of derivative for hedging in the long run. 4. In relation to design of concerned risk management system, it will be sensible for TPC to subordinate a task team for hedging under TPC’s financial vice-president.