Reforming International Monetary System †Free Samples to Students

Question: Discuss about the Reforming International Monetary System. Answer: Introduction: The increased rate of interest present in Thailand is a testimony to the uncertainty prevailing in its economy. Hence, it can be anticipated reasonable that the value of Baht is going to depreciate in the near future which will result in lower amount of Australian Dollars being received by the company in exchange of same number of Baht (Boriob et al., 2017). Hence, it is prudent that despite the lower interest rate of investments in Australia, the company should refrain from investing it in Thailand at a higher rate of interest. This is because even if the company is getting a higher rate of interest the benefits of the same will no accrue to the company if the value of Baht currency declines disproportionately in the future. In case the excess funds earned in Thailand are invested back in Thailand then the company will need more money that it might have to fulfil by taking a loan back in Australia at the prevalent rate of 10%. The additional funds so acquired will be instrumental in supporting the operations in Australia (Avdjiev et al., 2016). The funds that were supposed to be remitted back to Australia for investment purposes at 8% rate of interest will no longer be available for the same purpose. Furthermore, if the Bahts value reduces by 5% as the studies suggest then investments made in Thailand will be yielding an interest of 9.25%. Hence, it can be seen that in case the company is reinvesting the excess money earned in Thailand. Then along with borrowing money for the additional funds required for carrying out the operations in Australia the returns that the company was, getting from Thailand will also decrease in the near future, which will be detrimental to the interest of the company (Titman e t al., 2017). The analysis as given below depicts the comparison between the two options available with the company. At present the company can either invest the funds back in Thailand or exchange them and remit them back to Australia. If the second one of the two options is exercised then the company will be enjoying a gain of $8389001.34 It is the holding company of the Brambles Group. It is listed on the Australian Stock Exchange. The company is mainly concerned with supply chain logistics specialising in accumulation of unit-load equipment and related services. It is mainly focused on outsourcing of pallets, crates and containers (Bech et al., 2014). As per the data of 30th June 2015 Brambles had an employee number of around 14000 persons and was the owner of around 500 million pallets, crates and containers with the help of 850 service centres. The company has its operations in America, Europe, Australia and a number of other countries collectively termed as other by the company. The highest revenue generating area outside of Australia is America in case of the company. The revenue generated by the company from America amounts to US$2755.2 million in the year 2017. The main risk of foreign exchange arises either in the value of the transactions that are translated into the functional currency of any of the subsidiary of the company or in respect of the value of the assets and liabilities of the overseas subsidiaries which are translated back into the groups functional currency (Zaghini, 2014). In order to mitigate the risk foreign exchange hedging is used when the risk crosses certain thresholds made applicable by the company. In pursuance of this forward foreign exchange contracts are used to manage the exposures. The company incurs expenses and incomes in the local currency in operation such exposures do not amount to significant extent. As additional response towards this risk translation exposures are mitigated by rising of debt in currencies where the matching assets exist. The company operates in the field of bio-technology and its operations are wide ranging like research, manufacture, development and marketing of products which prevent and are able to cure people suffering or prone to diseases that can cause serious medical conditions to the person (Gambacorta et al., 2015). The company mainly produces antivenom, blood plasma derivatives and vaccines. The various geographical areas of operations of the company are United States, Germany, Switzerland, UK and many other countries referred to as rest of the world by the company. The highest revenue generated by the company outside of Australia is from United States and as a matter of fact it is even more than what the company earns from its operations in Australia. The revenue from United States amount to US$2850.8 million. This affirms the fact that the company enjoys a strong customer base in United States, which si substantially more than its own country. In order to mitigate the risks of foreign currency exposure the company makes use of fixed currency which is capable of eradicating the effect of movement in the exchange rate. This further enhances the comparability of the performance of the group. In order to apply the constant currency the company converts the net profits of the entities of the group reporting in currencies other than the fixed currency of the group i.e. US Dollars at the rate which was prevalent in the prior comparable period (Frieden, 2016). Further the company makes adjustments in respect of the material transactions that were affected by the fluctuations of the exchange rate at a rate which would have been applicable if the transaction had taken place in the prior comparable period. The analysis of the chart comparing the correlation between the exchange rate of the USD to AUD and the two companies it is found that corresponding share prices of both the companies are in negative correlation with the exchange rate (Frisari Stadelmann, 2015). It implies if the exchange rate is going upwards then the share prices of the companies would go down and when the exchange rate is going downward the share prices of both the companies would go up. Among the two companies CSL LTD. has a higher degree of negative correlation as compared to Brambles Ltd. Both the companies under study do not have a secondary listing on the stock exchange any other countries except the Australian Stock Exchange. This is deterring for both the companies as the revenue patterns of both companies suggest that they have significant sources of revenue accruing overseas (Van den Berg, 2016). The companies are losing on the opportunity of gaining the confidence of the customers and raising more capital in the form of share capital and debt funds from other countries. Getting itself listed on a secondary stock exchange will help both the companies in increasing their flexibility with respect of raising additional capital. The company becomes capable of raising capital in different time zones along with the ability to do so in multiple currencies. The company can also reduce its overall cost of capital by adhering to the disclosure requirements of the overseas stock exchanges diligently. This is because with accurate and diligent disclosure practices the company will be enjoying the goodwill and reputation both from foreign countrys statutory bodies as well as the investors who will be ever more ready to invest their funds in the company (Frieden Lake, 2015). The cross listing comes with the added advantage of media coverage which increases the goodwill of the company. In spite of these advantages however, there are various costs associated with the process of secondary listing like registration costs, reports and disclosure requirements etc. As per the revenue patterns of both the companies it is recommended that CSL and BXB should get listed on the stock exchange of United States. As, both the companies have significant revenues accruing out of the country (Buchholz Tonzer, 2016). This will help the countries in further expanding the operations in the country by utilising the funds raised from that country itself. The companies will enjoy the benefit of established business and will be able to garner the faith of the shareholders. The company will get the opportunity of hedging the market fluctuation in and out of its own country. diversification of operations along with getting listed on a secondary stock exchange will not only improve the operational capability of the organisation but also the financial performance and security of the company by providing the company more than one platform to trade its securities (McCauley Schenk, 2015). Reference Avdjiev, S., McCauley, R. N., Shin, H. S. (2016). Breaking free of the triple coincidence in international finance.Economic Policy,31(87), 409-451. Bech, M. L., Gambacorta, L., Kharroubi, E. (2014). Monetary policy in a downturn: are financial crises special?.International Finance,17(1), 99-119. Borio, C., Gambacorta, L., Hofmann, B. (2017). The influence of monetary policy on bank profitability.International Finance,20(1), 48-63. 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