International Finance Assignment : RioTinto

Running head: INTERNATIONAL FINANCE
International finance
Name of the Student:
Name of the University:
Authors Note:

INTERNATIONAL FINANCE2
Table of Contents
PART A:.....................................................................................................................................3
Answer to question 1..................................................................................................................3
Answer to question 2..................................................................................................................3
Answer to question 3..................................................................................................................4
PART B:.....................................................................................................................................6
Answer to question 1..................................................................................................................6
Answer to question 2..................................................................................................................8
Reference..................................................................................................................................10
Appendices...............................................................................................................................12

INTERNATIONAL FINANCE3
PART A:
Answer to question 1.
The company is faced with a situation wherein it has an option of reinvesting its
excess funds back into Thailand which will yield returns at a higher rate of interest than what
the company will be earning if the amount is invested back in Australia i.e. its own country.
The interest rates on investments in Australia and Thailand are 8% and 15% respectively.
Apparently it might seem that it is reasonable to invest back the amount in Thailand but, the
company should factor in the fact that such high rates of interest suggest that the economic
condition of Thailand is uncertain (Borio et al. 2017). This uncertainty may lead to the
depreciation of Baht currency in the near future which will reduce the overall exchange rate
of the currency i.e. the company will get fewer amount of Australian Dollars in exchange of
same number of Baht. Hence, it is prudent that the company its excess funds in Australia at a
lower rates of interest than in Thailand.
Answer to question 2.
The company needs additional funds for the supporting its operations back in
Australia. If the company reinvests the excess amount earned in Thailand instead of remitting
it back to Australia, it will have to borrow additional funds at an interest rate of 10% back in
Australia. Further, if the value of Baht depreciates by 5%, which is very reasonably possible
sighting the uncertainty in its economy, the returns earned from Thailand will reduce to
9.25%. Further, the company will not be investing the excess funds at a return of 8% in
Australia (Avdjiev et al. 2016). Hence it is seen that the company reinvests the funds back in
Thailand it will have to incur extra debt expenditure for the additional funds raised via
borrowing and furthermore the return that s earned in Thailand will reduce in the near future
to 9.25%.

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Answer to question 3.
The following table shows the comparison between the two options presently before
the company. The company can either remit the excess funds earned by it back to Australia or
reinvest the funds into Thailand.
Plan
Particulars
Calculation of revenue denominated in baht
Speedos price per pair
number of pair of speedos
Revenue in Baht
Cash Flow available in baht
Revenue in Baht
Cost of goods sold
Cash flow available in baht
Calculation of dollar receipt as baht is converted in doll
Cash flow available in baht
Interest earned on baht for a one year period (15%)
Calculation of dollar receipt as baht is converted in dollar in one year
Cash flow available in baht
Interest earned on baht for a one year period (15%)
The conversion that will be made in one year
Expected spot rate in one year
Expected dollar receipt in a period of one year
Plan 2: Convert funds immediately
The conversion that will be made in one year
Expected spot rate in one year
Expected dollar receipt in a period of one year