A Study of the Exchange Loss and Hedging Measures in Military Procurement Projects

• Main Authors: Jin-Fong Kuo, 郭金鳳
• Other Authors: Erh-Cheng Hwa
• Format: Others
• Language: zh-TW
• Published: 2006
• Online Access: http://ndltd.ncl.edu.tw/handle/02162775096918296017

碩士 === 世新大學 === 經濟學研究所(含碩專班) === 94 === This study examines the feasibility of installing a mechanism that serves to reduce the exchange loss of military procurement projects. As military procurement budget declines year after year, it’s necessary to find a way to reduce the cost of arms acquisition without endangering national security. The purposes of this study are as follows: 1.understand the present situation of the procurement projects. 2.analyze methods and tools with hedging for foreign exchange 3.using historical simulation to see the difference when a procurement project adopts hedging strategy 4.discuss the integration strategy of procurement projects and foreign exchange hedging. 5.propose the operation mechanism of procurement projects and foreign exchange hedging fund. This study adopts the general system theory as research method which includes documents analyzing, interview with experts, historical simulation, and it uses SWOT analysis to explain hedging strategies and the advantages as well. It first uses qualitative data analysis to classify exchange and hedging management among enterprises, and to analyze the risks, orientation, present situation and problems of procurement projects. Secondly, it uses quantitative data analysis with historical simulation to calculate exchange losses in procurement projects cases and then compile statistics. Through interview with experts, understand the hedging management and discuss the possibility that military adopts foreign exchange hedging, it may be able to develop a suitable model of outsourcing management as a reference to reduce purchasing cost and hedging fund operation mechanism for military. The important discovery of this research is as follows: 1.Risk management: In the past decades, the military has never taken any hedging measures or employed any risk data for procurement projects. As a result, the military has paid NT$69,813,570 for exchange loss in its acquisition of weaponry from 1996 to 2005. As the empirical analysis of historical simulation shows, with an confidence interval of 90% to 95% and research duration of 50, 100 and 200 days, a procurement project could entail an exchange loss of NT$2,218,543,675 without any warning. In response to tightening budget, the military establishments should consider how to curb the continuing expansion of exchange loss and ease the financial burden of the government. 2.Comparing of 3 common hedging tools: Cash on Delivery, Delivery Forward, and Delivery Option. 3.With documents analysis, find a practicable integration strategy for procurement projects. The process of paying the bill for procurement projects is full of uncertainties; therefore, installing a fund may well be the best integration strategy. Discoveries with Experts’ Interviewing: (1)manipulate derivatives with funds is practical. (2)Manpower of fund operation and raise fund are the main problems that need to be broke through. (3)The fund can be entrusted to a financial institution which is a non-government organization. Conclusions: 1.It is necessary to adopt hedging strategy in order to reduce the cost of procurement projects. 2.It is important to take experts’ advices and seriously estimate the possibility of a project. 3.Fostering talents and enhance professional knowledge. 4.Updating the relevant regulations. Suggestions on: 1.Ministry of National Defense (decision maker) 2.Comptroller Bureau and Armament Bureau (drafter) 3.ROC Defense Procurement Division (consultant and negotiator) 4.Integrated Finance Division (executor)