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China Aviation Oil' Failure Essay

3093 words - 12 pages

After 1980s, international finance market has high speed of development. Especially after 21 century, come out many different finance products on derivate market. From 2000-2005, total trade capital increase from $318 billion to $1,005,8 billion average growth rate of five years is 25.9%, and option market increase $66.4 billion to $402.6 billion, growth rate pre annual was 43.4%. (Contemporary finance & economics). Derivate products have both sides on the scale, in one hand; it might help company to hedging the risk. In other hand, it might push the company into finance problem. At the end of 2004, the China aviation oil corporations Ltd (CAO) trade option of oil and finally made lost of $554 millions.This report are aim to disclose the reasons of why CAO making lose and give proper solution of using derivate tools to reduce risk. First section of this report will give briefly back ground information about CAO and oil industry. Second section is going to give the concept of derivate tools and program which CAO used and how to push the company into problem. The third chapter is going to discuss the problems of why the company using wrong way of derivate toots and provide the better solution of how to use the derivate tools for case of CAO, it will also be provide other successful case in this chapter. The final chapter will give the evaluation and conclusion of this report.LimitationThere are two limitations of this report show as follow:1 Time limitation: Time is limited for research2 Resource limited CAO did not disclose they annual report of year 20053 language translate Some critical evaluate are basic on Chinese language website, difficult to translate properly into English.Chapter TwoCorporate backgroundChina aviation oil (Singapore) corporation Ltd (CAO) was incorporated in Singapore on 26 may 1993. It became a public listed company on 6 December 2001. The largest share holder of CAO is China national aviation fuel holding company (CNAF), formerly known as China aviation oil holding company (CAOHC), one of the largest state-owned enterprises in China. CNAF owns 51% of the Company's shares. BP investments Asia is also a strategic investor of CAO, owning 20% of CAO shares. On the news of BBC 05/12/2005, BP invested $130 millions into CAO for rescue plan (http://news.bbc.co.uk) The company's current principal activities are jet fuel procurement and investment holding in strategic oil-related business (Source: 2006 annual report of CAO).Since MR.Chen Jiulin become an chief executive in 1997, the market share of the company only around 3%, in the next years, the market share jump up to 84%, after that, it keeping to obtain the market share in the following few years. The data shows below:199719981999200020013%84%90%92%100%(Source: OIL finance Journal, Jan-2005)The net asset increase from 1997 168,000 us dollar to 2003 128 million us dollars. In the second half of 2003, MR. Chen lead CAO stared to trade on oil derivative market, and it made...

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