Annual Report Shareholder Services

Risk Management and Disclosure Practice

Transaction of derivatives
•Legal grounds
This Company is engaged in transactions of the various derivatives in order to evade the market risk to be caused by the fluctuation of exchange rates and interest rates, instead of seeking profit and conducting speculative business. The legal grounds for the transactions include not only the relevant laws and regulations promulgated by the competent authority and the GAAP, but also the guidelines governing transactions of derivatives enacted by the various companies and the "guidelines governing foreign exchange and risk management" defined by this Company.
•Risk management mechanism
(1)	The transactions of financial derivatives of the companies attached to this Company are all handled by the financial dept. of the Company Administration. In order to fulfill the transactions of derivatives and guidelines for risk control and management that prohibit the staff engaged in transactions and delivery from assuming the same position concurrently, the financial dept. of this Company is categorized into the foreign exchange section and risk management section. Upon conclusion of contracts by the foreign exchange section, the details of transactions shall be double-checked by the risk management section and financial organizations, and then the section and organizations shall proceed with the following delivery. In the event of any extraordinary transaction found, it is necessary to draft the countermeasure and report to the top supervisor of the financial dept. to seek approval to follow up and correct the situation.
(2)	In order to prevent the trading counterparts from breaching contracts due to extraordinary credit, this Company is used to applying the appraised level of the long-term credit as the indicator to define the level of potential trading counterpart's credit. Meanwhile, this Company will double-check the trading counterparts' credit per six months to prevent this Company from suffering loss due to the risk for breach of contracts.
(3)	This Company also established the internal audit department independent from the financial dept. of the Company Administration, which is responsible for auditing the effects and validity of the various hedge transactions dealt with by the financial dept. on an irregular basis, submitting the audit report to the (Vice) President of the Company Administration authorized by the Board of Directors and following up the situation upon approval of the (Vice) President.
•Drafting of trading strategies
With respect to this Company's hedge trading strategies, the foreign exchange section of the financial dept. is responsible for drafting the short-term, mid-term and long-term hedge strategies and selecting the optimal financial commodities subject to the demand for foreign exchange and sufficiency of funds and by taking the market tendency into consideration. The section shall report the market tendency, risk management and routine, and the execution and plan of the project hedge transactions to the supreme financial supervisors of companies attached to this Company and the internal audit department in the meeting of companies' supreme advisors and financial supervisors held on a monthly basis, and shall also submit the written report thereof to the (Vice) President of the Company Administration authorized by the Board of Directors and execute it upon approval of the (Vice) President.
•Operative strategies
(1)	This Company's exchange rate hedge is intended to be subject to the natural hedge capable of decreasing each company's net exchange rate risk. The deficit in the daily working fund for foreign exchange is paid by buying in spot exchange or forward exchange when the exchange rate is favorable in the market. With respect to the long-term debt for foreign currency, this Company is used to signing contracts of Cross-currency swaps(CCS) with several renowned international banks when the interest rate or exchange rate stays low at the time of conclusion of contracts or appropriation, so as to diminish the adverse impact on this Company's profit due to the fluctuation of exchange rate.
(2)	With respect to this Company's long-term liability of floating interest rate (including the company's liability subject to floating interest rate), in order to avoid the risk brought by fluctuated interest rate. After taking the development of the financial market into consideration, this Company signed contracts of Interest rate swaps (IRS) with several renowned international banks when the interest rate or exchange rate stays low at the time of conclusion of contracts or appropriation, so that the undertaken interest rate would be lower than the financing cost estimated in the investment project. For the time being, the total contract amount accounts for a specific rate of this Company's total liability (more than 56%). Therefore, even though the interest rate fluctuated due to uncertain factors, no significant impact was produced on this Company.
•Evaluation of market value of loan and hedge positions
The risk management section of the financial dept. shall evaluate the appraisal information about unrealized profit and loss of loan and hedge positions of long-term and short-term loans subject to the market value on a weekly basis, and then report it to the top supervisor for proofreading. It shall also report it in the meeting of companies' supreme advisors and financial supervisors held on a monthly basis, so as to precisely control the status of the realization of profit and loss of each company's risk positions and effect of hedge transactions.
Grant of fund to others
This Company is used to loan fund to others subject to the "Guidelines Governing Loan of Fund to Others" approved by the board of directors of company. In principle, the counterparts to be loaned the fund shall be the companies trans-invested by, or dealing with business with, this Company. The amount of fund to be loaned shall be subject to Article 15 of the Company Law and the fund shall be loaned upon approval of directors. Given that the loan is chiefly granted for the purpose of short-term dispatch of fund and the counterparts to be granted the loan are subsidiary companies and affiliates with well-founded finance, this Company has never suffered any loss due to bad debt.
Endorsement
This Company is used to making the endorsement subject to the "Guidelines Governing Endorsement" approved by the board of directors of each company. The counterparts to be granted endorsement are mostly subsidiary companies or affiliates of this Company. The endorsement is applicable to such items as financing and import tax. Given that the affiliates have the well-founded finance, this Company has never suffered any loss due to the endorsement.