2012 Annual Report - ZTE

ZTE CORPORATIONReport of the Board of DirectorsC. Save as aforesaid, the Group did not hold any stakes in non-listed financial enterprises suchas commercial banks, securities companies, insurances companies, trust companies and futurecompanies, nor did it deal in the shares of other listed companies or was otherwise engaged insecurities investment during the year.(2) Derivative investments, entrusted investments and entrusted loans1Derivative investmentsPrincipal terms of derivativeinvestment contracts (includebut not limited to: the source offunds, parties to the contract,investment shares, investmentperiod, product types, whetherlitigation is involved, whetherthere are disguised utilizationof issue proceeds and reviewof the investment by competentdecision making authorities)Risk analysis and controlmeasures (including but notlimited to market risks, liquidityrisks, credit risks, operationalrisks and legal risks) in respectof derivative positions duringthe reporting periodIn 2012, the Company conducted derivative investment using its internalfunds through either ZTE, ZTE Kangxun or ZTE HK. Contract typesincluded fixed income and value-protection derivatives. Fixed incomederivatives had an investment term of 1 year or less. Value protectionderivatives included forward contracts on USD, Euro, JPY and emergingmarket currencies and USD interest rate swaps. The investment term offorwards was 1 year or less. The investment term of USD interest rateswaps matched the medium- and long-term debts of ZTE HK.The derivative investment quota of 2012 was considered and passed bythe Twenty-seventh meeting of the Fifth session of the Board of Directorsand 2011 Annual General Meeting of the Company. For details, pleaserefer to the “Announcement of Resolutions of the Twenty-seventh Meetingof the Fifth Session of the Board of Directors” published by the Companyon 28 March 2012 and “Announcement on the Resolutions of the 2011Annual General Meeting” published by the Company on 25 May 2012.The derivative investments made by the Company have not been involvedin litigation or disguised utilization of issue proceeds.Derivative investments conducted by the Company during 2012 includedfixed income derivatives and value-protection derivatives. The major risksand control measures are discussed as follows:1. Market risks: For fixed-income derivatives, gains were recognisedat maturity. Gains or losses arising from the change in fair value asa result of differences in domestic and overseas forward quotationsduring the investment period are accounted for as variable gains orlosses, which will not affect the ultimate gains of the derivatives.Gains or losses arising from the difference between the exchangerate for settlement of value protection derivative investmentcontracts and the exchange rate prevailing on the maturity datewill be accounted for as gains or losses on revaluation for eachaccounting period during the effective period of the value-protectionderivatives. Effective gains or losses shall be represented by theaccumulative gains or losses on revaluation on the maturity date.38