International Finance

Running head: INTERNATIONAL FINANCE
International Finance
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1INTERNATIONAL FINANCE
Table of Contents
Question 1..................................................................................................................................2
Question 2..................................................................................................................................2
Question 3..................................................................................................................................2
Question 4..................................................................................................................................3
Question 5..................................................................................................................................3
Question 6..................................................................................................................................4
Question 7..................................................................................................................................4
Reference....................................................................................................................................6

2INTERNATIONAL FINANCE
Question 1
The Exchange rate followed by the Australian economy is the floating exchange rate
system however the exchange rate in China is a fixed exchange rate regime with movement
of the currency in a band of around 2%. The key advantage of the exchange rate placed in
Australian economy will allow and reflect economic reality about the economy the key
disadvantage will be the rapid and infrequent movement of the currency. The key advantage
of the fixed exchange rate is the stability in the price movement in the currency exchange rate
regime followed by the Chinese economy (Tang 2015). The key disadvantage of having a
fixed exchange rate regime is that the large changes at a time can disrupt the performance of
the economy when the currency would be devalued at a single point of time to a lower value
(Lardy 2016).
Question 2
Bell Beijing would be earning their profits from the business operations done in Bell
Beijing and the income will be earned in the Yuan currency. The company will be
transferring the income earned in the Chinese economy by paying off with the taxes in the
China at 25% which is the Corporate Tax Rate in China. The income henceforth would not be
taxed in Australia as there is tax treaty between the two economies which avoids the effects
of double taxation effect on the income earned by the company. The company can apply
relevant financial derivatives instrument for the purpose of hedging while transferring the
income from Yuan to Australian Dollars so that the forex risk is mitigated by the company
(Gay 2016).