Currency Exchange Risk and Capital Market Consideration of Singapore Airlines

Running Head: Financial Accounting
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Project Report: Financial Accounting

Financial Accounting
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Currency exchange risk:
Singapore airlines are operating its business into 62 international destinations and thus
the currency of different countries are generated and managed by the company. The company
reduces the exchange currency risk by using the heading method. The Singapore airlines are
focusing on the overseas assets altogether so that the foreign revenue generation could be
measured and heading strategies could be prepared accordingly (Pyke & Sibdari, 2018). The
capital expenditure, fuel and the debt repayment are largely denominated in the US dollars
and thus, it is important for the business to maintain a great amount of US dollar in order to
mitigate the exchange losses and currency risk of the business.
Figure 1: USD to SGD
(XE, 2018)
In terms of global economical level and the uncertainty in the global business,
Singapore airlines has to make sure that the enough funds are managed by the company in
order to assure the liquidity level and financial risk of the business. The Singapore airlines are
managing a great bank balance in order to assure that the short term deposits and long term
deposit of the business could be repaid and the debt securities listed outside of the Singapore
market can also be entertained by the business (Lily, Bujang & Karia, 2018).

Financial Accounting
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Figure 2: Liquidity analysis
(annual report, 2018)
The liquidity analysis of the business represents that along with the time, the current
assets and the funds managed by the organization in order to meet the current debt
obligations have been reduced and it indicates the risk for the business. However, if the bank
balances of the business is taken into the concern than it has been found that the hedging
strategies of the business have been improved at better level (SOTTHISOPA, 2016).
annual report (2018) of company explains that the foreign exchange loss of the
business has been higher in the current year because of the sudden changes in the currency
rate in the US dollars because of that the other revenues of the business have been used to
offset the total loss of the business and now the business has prepared a list of all the financial
and commodity risk which affects the currency risk of the business (XE, 2018). The company
has planned to use the derivatives in order to improve the gain of the business and mitigate
the currency risk of the business.
The largest exposure of the business is from the US dollars, Euro, Australian dollar, UK
sterling pound, New Zealand dollar, Japanese yen, Indian rupee and Korean Won. In all the
currency, surplus is gained by the business except the US dollar. The deficit in US dollar is
generated because of the fuel prices and aircraft leasing cost (annual report, 2018). The
company also hold the cross currency swap contracts in order to hedge the risk and improve
the foreign currency gain of the business.