Impact of Monetary Policy on National Grid

This assignment examines the influence of monetary policy on National Grid's operations. It analyzes inflation and money supply data from Argentina, Australia, and South Africa to understand their potential impact on the company's financial health. Additionally, it delves into National Grid's market position and sales segmentation, considering recent developments like the sale of its gas division and the implications for future performance.

Inter Assignment

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
Evaluating the link between money supply and inflation in various countries over the period
of three years..........................................................................................................................1
QUESTION 2...................................................................................................................................7
Analysing the Leveraged Buyout of UK National Grid Gas division in Q4 2016 as per the
views of FPC's........................................................................................................................7
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12

ILLUSTRATION INDEX
Illustration 1: Change in the inflation..............................................................................................2
Illustration 2: Money supply Australia............................................................................................3
Illustration 3: Changes in inflation rate of Argentina......................................................................4
Illustration 4: Money Supply changes in Argentina........................................................................5
Illustration 5: Inflation rates in South Africa...................................................................................6
Illustration 6: Illustration 6: Money Supply in South Africa...........................................................6
Illustration 7: Sales by segmentation and the records......................................................................8
Illustration 8: National Grid market data delayed............................................................................9

INTRODUCTION
Inflation and the money supply is the main factors and economic terms which are
analysed, controlled and executed by policies of country. The main role is played by the
monetary policies and the economic policies of a nation. In the present report, there has been
discussion over the inflations and money supply system in several nations such as South Africa,
Argentina and Australia. The report will help in analysing the policies made by economists in
these countries as to overcome with such operational obstacles in the recent three years. Further,
the report will be helpful in terms of analysing the UK's financial stability and the challenges to
be obtained by them in terms of Leveraged buyout for UK National Gas Divisions.
QUESTION 1
Evaluating the link between money supply and inflation in various countries over the period of
three years.
Money supply:
This is the economic factor which depended over entire stock market in a country. It
makes the proper analysis over the liquid instruments which are circulating In the nations
economy. It includes the assets, cash, coins and the balances in the banks saving accounts for
corporates of individuals (Razin, 2017). Therefore, it will be beneficial in terms of short term
investments.
Australia:
The monetary and financial services like exchange rates, interest rates etc. are to be
managed and executed by Reserve Bank. The polices are set by the bank to make the stability in
the economy of country as well as facilitate the loans in the money market (Xu, 2017). Over the
past decades, there has been huge impacts of the financial crisis in the market such as increment
in the prices of commodities and services, fluctuating exchange rates as well as inappropriate
interest rates over the loans and grants. There are the main objectives of the Reserve Bank as to
bring stability in the currency value as well as presenting the full employment. They aim at
facilitating the economic prosperity and welfare to the citizens in country. Therefore, the
framework of the monetary policy is to administrate or control the inflation which is the
centrepiece of the policies (Hung & Thompson, 2016). Thus, the motive is to acquire 2-3% of
inflation rates, on average and over time. Therefore, the rate of inflation is approximately low
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which do not distort the economic decisions in the community. In this regard, it facilitates the
policies for adequate decision making as well as welfare for the private and small sector
enterprises. However, the change in inflation can be seen as per the below listed graph which
describes the inflation for the long run since 1965 to 2017:
Inflation in Australia:
Illustration 1: Change in the inflation
(Source: About Monetary Policy, 2017)
By considering the above graph and the analysis of changes in the inflation rate, it is due
to the change in the interest rates incurred during such period. This determination helps the
economists of the country in terms of forecasting and knowing the impacts of inflation over the
monetary policies (Nguyen, Dridi, Unsal & Williams, 2017). Therefore, it can be said that there
will be various obstacles in terms of controlling the inflation in Australia. This approach
facilitates the information and the rights of monetary policies to make strategies in terms of
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analysing as well as enhancing the industrial outputs (Lu & et.al., 2017). Therefore, the
consumer price in Australia has been grown for 1.8% in the last quarter that is in September
2017. It was 1.9% in the 2nd quarter which has 2.0% of increment. On the other side, in the year
2016 December, it was having the lowest inflation rate due to dropping costs of transportation,
prices of commodities as well as housing loans (Australia Inflation Rate, 2017).
Money Supply:
In accordance with the changes in the money supply of Australia, there has been constant
rise in the money supply over the last three years as shown in the below listed graph as:
Illustration 2: Money supply Australia
(Source: Australia Money Supply M1, 2017)
It helps in analysing the changes in various interest rates such as interbank rates over
which the small Government banks will pay the interest to the Central Bank which have been
raised so it helps the government in retaining adequate amount of funds and reserves (Fitzgerald,
2016). On the other side, there are stable interest rates over the housing and commercial loan so,
it does not affect the per person income as well as it has become appropriate for the government
to retain gains and reserves.
Argentina:
In order to control the interest rates, there will be involvement and influences of the
monetary policies which in turn helps in executing the money supply and exchange rates (Mpofu
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& Peters, 2017). Therefore, in the recent times there has been various impacts of inflation over
the monetary systems of Argentina which in turn, affect the raise in the prices of commodities as
well as unemployment in the national boundaries (Kaplan & Gungor, 2017). Therefore, due to
increment in the prices of commodities, people started saving their money which affects in the
low revenue gathering for the government. Thus, such things affect the financial and economic
stability of the country (Hooke, Hee & Yook, 2017). However, the inflation rate of Argentina
can be understood as per the below listed graph:
Inflation rate of Argentina:
Illustration 3: Changes in inflation rate of Argentina
(Source: Argentina Inflation Rate, 2017)
In accordance with the changes in the inflation rate of this country, it can be said that in
the current time it has 20.90 % in 2017 November. Thus, the average or mean rate of inflation in
Argentina is approximately 200.59% form 1944-2017 which reached highest in the year 1990 as
20262.80% as well as the lowest in the year 1954 as -7%. However, it can be said that over the
years, the country has ups and downs in the inflation rate as per the challenging economic
scenario such as increment in the prices of commodities, petroleum products, food articles and
various necessities or major expenditures of country (Ayash, Bartlett III & Poulsen,2017).
Money Supply:
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Illustration 4: Money Supply changes in Argentina
(Source: Argentina Money Supply M2, 2017)
By considering the graph, it can be said that there has been increment in the money
supply of Argentina from the past decade (Reder & Goodman, 2017). In the current year, the
money supply has been analysed as USD 104.52 in 2017 October. Therefore, it indicates the
reduction in the recent time which are previously 16.36 USD in September for the same year.
Thus, it can be said there has been sound economic and monetary policies in the nation which
helps them in dealing with inflation (Cukierman, 2017).
South Africa:
In accordance with the changes in the national economy of South Africa, it can be said
that there has been increment and decrement of the revenue retention as well as rates of inflations
(Dahlberg & Fleckenstein, 2017). Therefore, the country has reduction in the inflation rates over
the past few months which are described as follows:
Inflation rate South Africa:
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Illustration 5: Inflation rates in South Africa
(Source: South Africa Inflation Rate, 2017)
By considering the graph, it can be said that there has been reduction in the inflation rate.
Thus, the prices of commodities are favourable as well as easily affordable by consumers
(Dahlberg & Fleckenstein, 2017). There has been adequate revenue generated by government
which is reflecting in the reduction of inflation.
Money Supply:
Illustration 6: Illustration 6: Money Supply in South Africa
(Source: South Africa Money Supply M3 2017)
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In consideration with the changes in the money supply of South Africa, it has been
analysed that there is increment in the money supply over the past few years. Thus, it can be said
that it indicates satisfactory improvement in the revenue gathering of the government as well as
the prices over goods and services are favourable for the citizens (Haddad, Loualiche & Plosser,
2017). Thus, it can be said that with the help of such favourable reports, there will be fruitful
employment level in the country.
QUESTION 2
Analysing the Leveraged Buyout of UK National Grid Gas division in Q4 2016 as per the views
of FPC's
Acquisition:
In terms of the concept, Leverage Buyout is the situation where an organisation acquires
another firm in terms of facilitating them with an adequate borrowing of money for the business
operations (Mpofu & Peters, 2017). The National Grid Gas Division UK has sold out its major
stakes in the gas pipe network to the group of investors. The main investors are Chinese and
Qatari Sovereign Wealth Funds in approx. 13.8bn. Thus, it can be said that the firm has sold out
its major project to the group which in turn reflects that there have been financial drawbacks in
the firm as well as the professionals do not come up with the suitable decision making to
overcome with such obstacles (Asquith & Weiss, 2016). Thus, this Leverage Buyout will help
National Grid Gas in attaining the adequate amount of capital gains for the business operations.
Investment shares:
On the other side, UK's power network operators have offered Macquarie, the Australian
investment bank with 61% of the shares. Therefore, the deal was also under the consideration of
CIC (China Investment Corporation) and Qatar Investment Authority (Hooke, Hee & Yook,
2017). The deal for selling the shareholding aims at analysing the governmental approach for
foreign investment and infrastructural development in UK which was announced by then in the
4th quarter. The motive behind such decision of government is to make infrastructural
development in Hinkley Point C nuclear power station (Haddad, Loualiche & Plosser, 2017).
Therefore, it will enhance the efficiency of the power station and will have the favourable
productivity in the long run. There will be help of Chinese backing in terms of making the
satisfactory improvements as well as better fund gathering.
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Financial benefits to National Grid:
However, in this regard, National Grid has presented that they will return 4bn to its
investors or dividend holders after the success of the deal with British Energy buyers which is
worth 150 bn pounds. As per the deals, National Grid will become able to receive 3.6bn cash
over its Gas plant in consideration of the stakes and 1.8bn for the debt financing such as paying
off the liabilities of the organisation (Ayash, Bartlett III & Poulsen, 2017). 31% of the shares will
remain in the business while,14.5% will be acquired by Macquarie, 10.5% to CIC, 8.5% to
Qataris and 10.2% to Allianz. Thus, the sale and deals were made to make the adequate
increment in the revenue growth as well as enhance the foreign interest in the Gas pipe
agreement (National Grid sells majority stake in gas division in £13.8bn deal, 2017). Thus, the
division of the operations will be helpful for the business in terms of having proper execution of
work as well as revenue gathering. The capital requirements will be overcome and give it a
profitable change (Reder & Goodman, 2017). Thus, it can be said that with the help of such
techniques, the business will become able to make adequate utilisation of funds and they will
have an efficient increment in the gains.
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Illustration 7: Sales by segmentation and the records
(Source: Sales by segment of National Grid Plc for 2016* (in million British pounds), 2016)
Economical influence of China over National Grid:
China is an emerging economy and having the rapid growth in the economic environment
so, it can be said that the dealings with CIC will help UK to have better operation as well as
appropriate development in capital and infrastructure facilities (Razin, 2017). Therefore,
according to the Chief Executive of National Grid, CIC has the better operational ability as it has
already held the stakes of Thames Water and Heathrow airport (Kaplan & Gungor, 2017).
Therefore, it will be fruitful dealing for the country in terms with having the profitable gains as
well as in the adequate infrastructural development (Xu, 2017). Therefore, it can be said that this
deal will help in making the fruitful increment as well as development in the national economy
of UK. Thus, this leverage buyout will help such industries in making the proper improvements
as well as raise the funds for the National Grip Gas which will be further utilised in buying
shares as well as in the operating activities of the organisation. It will also be helpful for the firm
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in terms of acquiring the revenue as well as having the large operational activities. Thus, it can
be said that such acquisition will give it a financial advantage on the long-term basis.
Illustration 8: National Grid market data delayed
(Source: National Grid to sell 61% of gas business to Sino-Australian group, 2016)
However, in accordance with such segmentations and the leverage buyout it can be said
that it was the largest foreign investment which has been acquired by UK energy which was held
after the government has announced critical infrastructure sale and review of the rules for the
same (Nguyen, Dridi, Unsal & Williams, 2017). Therefore, in accordance with the monetary or
financial benefits to the organisation it can be said that such revolution will help them in
attaining the adequate growth in the operations as well as it will improve the efficiency of firm.
In order to have such profitable growth for the long period there is need to plan better divided
policies which will help in making the adequate growth of the entity.
CONCLUSION
By considering the above report, it can be said that Australia, Argentina and South Africa
has huge impacts over their national economy as per infrastructural facilities in the country.
Thus, it will be beneficial as if the deal goes on the favourable state. Therefore, in accordance
with the leverage buyout, the business will have fruitful gains and it will be beneficial to them in
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having wider operational activities. As per inflation and money supply in the market. Thus, it has
been analysed that South Africa has better economic policies which in turn reflecting in the
growth of the economy. Further, the National Grid Gas has Leverage Buyout with the group of
investors who has acquired the stakes in this company and it has been estimated by the
professionals in this organisation that such acquisition will help in the development of
infrastructural facilities in the country. Thus, it will be beneficial as if the deal goes on the
favourable state. Therefore, in accordance with the leverage buyout, the business will have
fruitful gains and it will be beneficial to them in having wider operational activities.
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REFERENCES
Books and Journals
Asquith, P., & Weiss, L. A. (2016). Leveraged Buyouts and Private Equity Financing
(Congoleum). Lessons in Corporate Finance: A Case Studies Approach to Financial Tools,
Financial Policies, and Valuation. 363-392.
Ayash, B., Bartlett III, R. P., & Poulsen, A. B. (2017). The determinants of buyout returns: Does
transaction strategy matter?. Journal of Corporate Finance. 46. 342-360.
Cukierman, A. (2017). Money growth and inflation: Policy lessons from a comparison of the US
since 2008 with hyperinflation Germany in the 1920s. Economics Letters. 154. 109-112.
Dahlberg, A., & Fleckenstein, M. (2017). Performance improvements in reverse leverage
buyouts: Does size matter?.
Fitzgerald, T. J. (2016). Money Growth and Inflation. Small. 11. 17.
Haddad, V., Loualiche, E., & Plosser, M. (2017). Buyout activity: The impact of aggregate
discount rates. The Journal of Finance. 72(1). 371-414.
Hooke, J., Hee, S., & Yook, K. (2017). An Analysis of Returns of Moderately Aged Buyout
Funds with Low Residual Values. The Journal of Alternative Investments. 19(4). 67-76.
Hung, H. F., & Thompson, D. (2016). Money Supply, Class Power, and Inflation: Monetarism
Reassessed. American Sociological Review. 81(3). 447-466.
Kaplan, F., & Gungor, S. (2017). The Relationship Between Money Supply, Interest Rate and
Inflation Rate: an Endogeneity-Exogeneity Approach. European Scientific Journal, ESJ.
13(1).
Lu, X. & et.al., (2017). Financial development and relationship evolvement among money
supply, economic growth and inflation: a comparative study from the US and China.
Applied Economics. 49(10). 1032-1045.
Mpofu, T. R., & Peters, A. C. (2017). The impact of Monetary Policy Announcements and
Political Events on the Exchange Rate: The Case of South Africa (No. 700).
Nguyen, A. D., Dridi, J., Unsal, F. D., & Williams, O. H. (2017). On the drivers of inflation in
Sub-Saharan Africa. International Economics.
Razin, A. (2017). Israel’s Triumph over Inflation: The Long and Winding Road (No. w23061).
National Bureau of Economic Research.
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Reder, R. S., & Goodman, L. D. (2017). Dell Appraisal Proceeding: Delaware Court of Chancery
Finds Price Payable in Management Buyout Understates Fair Value by 28%. Vand. L. Rev.
En Banc. 70. 11.
Xu, J. (2017). Measuring Central Bank Credibility From the Effect of Inflation Shocks on Asset
Prices.
Online
About Monetary Policy. 2017. [Online]. Available through :<https://www.rba.gov.au/monetary-
policy/about.html>.
Argentina Inflation Rate. 2017. [Online]. Available through
:<https://tradingeconomics.com/argentina/inflation-cpi>.
Argentina Money Supply M2. 2017. [Online]. Available through
:<https://www.ceicdata.com/en/indicator/argentina/money-supply-m2>.
Australia Inflation Rate. 2017. [Online]. Available through
:<https://tradingeconomics.com/australia/inflation-cpi>.
Australia Money Supply M1. 2017. [Online]. Available through
:<https://tradingeconomics.com/australia/money-supply-m1>.
National Grid sells majority stake in gas division in £13.8bn deal. 2017. [Online]. Available
through :<https://www.theguardian.com/business/2016/dec/08/national-grid-stake-gas-
macquarie-bank>.
South Africa Inflation Rate. 2017. [Online]. Available through
:<https://tradingeconomics.com/south-africa/inflation-cpi>.
South Africa Money Supply M3. 2017. [Online]. Available through
:<https://tradingeconomics.com/south-africa/money-supply-m3>.
National Grid to sell 61% of gas business to Sino-Australian group. 2016. [Online]. Available
through :<https://www.ft.com/content/6f421412-bd00-11e6-8b45-b8b81dd5d080>.
Sales by segment of National Grid Plc for 2016* (in million British pounds). 2016. [Online].
Available through :<https://www.statista.com/statistics/640972/national-grid-revenue-by-
segment-uk/>.
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