International Finance: BHP Billiton, Bruin Aircraft, Beacon Lighting, UniSuper

This assignment explores various topics in international finance, including the flow of funds in BHP Billiton, medium-term loans of Citigroup, factors affecting the demand for pounds in Australia, production cost analysis in Beacon Lighting, and investment opportunities in Poland for UniSuper.

BUS 330 INTERNATIONAL FINANCE

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Table of Contents
Introduction......................................................................................................................................3
Chapter 3: BHP Billiton.................................................................................................................3
A. Flow of BHP’s fund................................................................................................................3
B. Medium-Term Loans of Citigroup..........................................................................................3
Chapter 5: Bruin Aircraft Pty Ltd....................................................................................................5
Chapter 6: Beacon Lighting.............................................................................................................7
A. Scenario description regarding high production cost..............................................................7
B. Incurring high production cost................................................................................................7
C. Stability of Australian dollar outflow......................................................................................7
D. Relationship with Alibaba.......................................................................................................8
Chapter 7: UniSuper........................................................................................................................9
A. Investing in Poland..................................................................................................................9
B. Covering arbitrage of interest..................................................................................................9
C. Risk in covering arbitrage.....................................................................................................10
D. Choosing between Australian treasury bills and covered interest arbitrage.........................10
Conclusion.....................................................................................................................................10
Reference List:...............................................................................................................................11

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Introduction
Exchange rates freely float that corresponds to frequent fluctuations and this depends on various
factors, which will be detailed in this current assignment. This task is based on the international
financial market. BHP Billiton is a multinational company of Australia that has eight subsidiary
companies. Detail several factors impact exchange rates along with scenario for increasing
production rate would also in this current section.
Chapter 3: BHP Billiton
A. Flow of BHP’s fund
Flow of fund of a company depends on the fiscal policy applied in the specific economy of that
country. Funds can flow depending on the nature of the fiscal policy that is the total amount of
interest that can be paid to make the cash flow from one company to another1. In this case BHP
Billiton has different subsidiaries companies in eight countries and Citigroup has branches in
many countries can collaborate to maintain a n increase flow of cash in the market. As Citigroup
has many branches in different countries, Billiton can use their branches to maintain the cash
flow by investing through Citigroup in their subsidiaries that is present in eight different
countries. Sometimes Citigroup could serve to Billiton as Creditors in case of investing in
economically backward countries and it can help in flowing of cash in the markets of small
economy by large stock investments.
B. Medium-Term Loans of Citigroup
Loan Denominated Annualised rate
British pounds 13%
Australian dollars 11%
1 Ahmed, Shaghil, Brahima Coulibaly, and Andrei Zlate. "International financial spillovers to emerging market
economies: How important are economic fundamentals?." Journal of International Money and Finance 76 (2017):
133-152.

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Canadian dollars 10%
Japanese yen 8%
Table 1: Medium-term loan interest percentage
(Source: Given by the researcher)
British subsidiaries could use Japanese yen as the interest rate is less compared to remaining
currencies that are British Pounds, Australian Dollars and Canadian Dollars. Medium term loan
refers to the loan given by main companies to their subsidiary branches. In this case, Citigroup is
the medium of passing the loan from Billiton to their subsidiary companies. Japanese yen is
giving only 8% interest on the loan, which means there will be more chances of investment in
those countries where the subsidiaries will give increase returns to the loan.

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Chapter 5: Bruin Aircraft Pty Ltd
Factors that can affect the
value of the pound
Check (✓) here if the factor
influences the Australian
demand for pounds
Check (✓) here if the factor
influences the supply of
pounds for sale
iAUS - iUK ✓
INFAUS - INFUK ✓
Income Growth Differential ✓
New Australian Quotas on
Imports from UK
✓
Australian Tariffs on Imports
from UK
✓
New UK Quotas on Imports
from Australia
✓
New UK Tariffs on Imports
from Australia
✓
Government Intervention to
Purchase $A with Pounds
✓
Government Intervention to
Purchase Pounds with A$
✓
Government Tax to be
Imposed on Interest Income
Earned by UK Investors from
Future Australian Investments
✓

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Government Tax to be
Imposed on Interest Income
Earned by Australian
Investors from Future UK
Investments
✓
Table 2: Government related factors
(Source: Given by the researcher)
The above table shows the demands in Australia for purchasing pounds and for selling pounds.
The flow of cash from Australian to UK economy will increase the demand for pounds in
Australia as the value of pound is quite higher as compared to the Australian dollar2. Similarly,
growth in the income differential will increase the demand for pound as increase in growth
indicates the increase in the per capita income of Australia as a result there will be more demand
for pounds in the economy3. Quotas and tariffs in imports will simultaneously result to increase
in demand for purchasing of pound as well increase in demand for selling of pound.
2 Jolliffe, Dean, and Espen Beer Prydz. Global poverty goals and prices: how purchasing power parity matters. The
World Bank, 2015.
3 Bahmani-Oskooee, Mohsen, Tsangyao Chang, Tsung-Hsien Chen, and Han-Wen Tzeng. "Revisiting purchasing
power parity in Eastern European countries: quantile unit root tests." Empirical Economics 52, no. 2 (2017): 463-
483.

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Chapter 6: Beacon Lighting
A. Scenario description regarding high production cost
Beacon lighting can decrease the production cost a little bit by purchasing raw materials of lamps
from Alibaba. The raw materials can be produced in the manufacturing department of Beacon
Lighting and as a result, the cost of production can be minimised as the importing costs of raw
materials for manufacturing lamps can be much less than already manufactured lamps4. This can
lead to increase in profit more than 20%.
B. Incurring high production cost
Beacon lighting imports part of lamps from Alibaba China, which causes them a specific amount
of cost in Australian Dollar. This Australian dollar when translated to Chinese Yuan the price
gets automatically high for Alibaba, but the rising inflation in China can cause to the change of
Yuan value compared to Australian dollar. In that situation once, Beacon imports manufactured
lights from China then they will suffer from high production cost. Beacon will be profited if they
manufacture the lights in Australia, as the cost-incurred value will be same as the revenue
incurred value.
C. Stability of Australian dollar outflow
Beacon can experience stable Australian dollar outflow payments to Alibaba, as the current
situation of China is that the value of Chinese Yuan is increasing due to inflation in their country
but similarly the value of Australian dollar is also increasing due to the inflation in Australian
economy. The cost of production paid to Alibaba will be Stable as the difference is quite high
between Australian dollar and Chinese Yuan5. So, as a result Beacon will experience stable
Australian dollar outflow.
4 Ocampo, José Antonio. "International Asymmetries and the Design of the International Financial System 1."
In Critical Issues in International Financial Reform, pp. 45-74. Routledge, 2018.
5 Bech, Morten L., and Aytek Malkhozov. "How have central banks implemented negative policy rates?." BIS
Quarterly Review March (2016).

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D. Relationship with Alibaba
The relationship of Beacon with Alibaba can change the amount risks as all the manufacturing
work is done by Alibaba. Beacon is involved in buying the manufactured lamps and then
importing those lamps and selling them in Australia. Manufacturing process needs a huge criteria
and different skilled workers with innovative methods, but importing from Alibaba is quite
affordable and risks in manufacturing are not involved with Beacon.

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Chapter 7: UniSuper
A. Investing in Poland
Investing in Poland is a critical idea as the value of Poland Zloty is A$0.40 which is quite low
compared to other countries but the amount of investment return in Poland is 14% that is much
higher than the current return percentage in Australia that is 9%. After viewing this two
perspectives investment in Poland will be profitable medium as the increase investment return
can help in earning of lump sum amount of profit6.
B. Covering arbitrage of interest
Covering the interest arbitrage can be done by investing in minimum subdivided parts. In other
words, the investment should be done in more than four companies or investment areas like
government bonds, shares and others as this can help in earning interest return from different
subdivided parts, which will result in earning profit7. If loss is incurred then also it cannot affect
the investment as much it could if invested in a single investment area.
Parameters Investment Interest Interest return
Australian Treasury Bills 10000000 14% 14000
Poland covered interest arbitrage 4000000 9% 3600
Australian Treasury Bills 10000000 14% 14000
Poland covered interest arbitrage 3900000 9% 3510
Table 3: Covering arbitrage of interest
(Source: Given by the researcher)
6 Rime, Dagfinn, Andreas Schrimpf, and Olav Syrstad. "Segmented money markets and covered interest parity
arbitrage." (2017).
7 Engel, Charles, Nelson C. Mark, and Kenneth D. West. "Factor model forecasts of exchange rates." Econometric
Reviews 34, no. 1-2 (2015): 32-55.

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C. Risk in covering arbitrage
The risk that is involved in covering the arbitrage is the deflation in Poland economy. The
decrease in the value of their currency that is Poland Zloty is the main risk factor in covering the
arbitrage.
D. Choosing between Australian treasury bills and covered interest arbitrage
Australian treasury bills will be more profitable as the currency value of Poland is much higher
compared to Australian dollar and the deflation in their economy can cause to incurring loss
from investment. Australian treasury bills is profitable than covered interest arbitrage.
Conclusion
It can be concluded that the value of Australian currency depends on the inflationary measures
taken in the economy. It could be said that flow of funds are analysed by the central bank of the
respective nation. The risks factors involved in investment in Poland can be managed by
investing in small and limited units in multiple subdivided parts of their investment area. This, it
could also be said that investing in foreign countries instead of manufacturing in own country
can be a profitable measures for companies in Australia.

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Reference List
Ahmed, Shaghil, Brahima Coulibaly, and Andrei Zlate. "International financial spillovers to
emerging market economies: How important are economic fundamentals?." Journal of
International Money and Finance 76 (2017): 133-152.
Bahmani-Oskooee, Mohsen, Tsangyao Chang, Tsung-Hsien Chen, and Han-Wen Tzeng.
"Revisiting purchasing power parity in Eastern European countries: quantile unit root
tests." Empirical Economics 52, no. 2 (2017): 463-483.
Bech, Morten L., and Aytek Malkhozov. "How have central banks implemented negative policy
rates?." BIS Quarterly Review March (2016).
Engel, Charles, Nelson C. Mark, and Kenneth D. West. "Factor model forecasts of exchange
rates." Econometric Reviews 34, no. 1-2 (2015): 32-55.
Jolliffe, Dean, and Espen Beer Prydz. Global poverty goals and prices: how purchasing power
parity matters. The World Bank, 2015.
Ocampo, José Antonio. "International Asymmetries and the Design of the International Financial
System 1." In Critical Issues in International Financial Reform, pp. 45-74. Routledge, 2018.
Rime, Dagfinn, Andreas Schrimpf, and Olav Syrstad. "Segmented money markets and covered
interest parity arbitrage." (2017).