BYD allots US$5 billion for forex derivatives trading to hedge risks from yuan volatility

“To offset the adverse impact from wild fluctuation in exchange rates and save financial expenses, the company has decided to carry out foreign exchange hedging through derivatives trading,” BYD said in a filing to the Hong Kong stock exchange on the weekend. “The derivatives trading will be conducted according to operational needs.”

The Shenzhen-based carmaker, which counts Warren Buffett’s Berkshire Hathaway as a shareholder, added that the US$5 billion would be used only for hedging purposes.

Currency futures are a hedging tool that allows traders to minimise potential losses from currency conversion. Technically, a stronger Chinese yuan would cause the carmaker to suffer foreign exchange losses if the revenue it makes abroad depreciates.

BYD’s plan to trade forex derivatives is a result of its rapid overseas growth, as its mass-market EVs have been increasingly well received outside mainland China. The company has operations in nearly 100 countries.