Cryptocurrency and International Business: A Finance Report Analysis

This finance report examines the impact of cryptocurrencies on international businesses, focusing on currency management and financial strategies. It analyzes the Diageo Company's currency management system, foreign currency risks, and the use of financial instruments like forwards and sw...Read More

Running head: FINANCE
FINANCE
Name of the student:
Name of the university:
Author Note

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Table of Contents
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................3
Answer to (A).........................................................................................................................3
Answer to (B).........................................................................................................................4
Answer to (C).........................................................................................................................5
Answer to (D).........................................................................................................................5
Conclusion..................................................................................................................................6

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Introduction:
The aim of the assignment deals with the Cryptocurrencies which creates impact on
the thinking of international businesses. Evidence of their impact on financial strategy,
practices and performance is performed and further analyzing international businesses with a
view to provide integration of the Cryptocurrencies into the financial structures of
international businesses.

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Discussion:
Answer to (A)
The currency management system of Diageo Company is obtained from the
preparation of the financial statement of the company. The group conducts its business in
various countries where some of which are in currency. This is the reason behind foreign
currency risk which takes place due to the movements in the exchange rates and the
translation of the underlying assets of the company. In order to manage the risk associated
with the currency, the group uses some of the applications along with the financial
instruments (Abramaowicz 2016).
On the other hand, hedge accounting is applied, documented and tested for
effectiveness on an ongoing accounting transaction. Diageo expects hedges of the transaction
entered into effectiveness which further does not impact the ineffectiveness on the
consolidated income statement of the company. As per the currency management system of
the company, hedge of net investment is implemented in the foreign operations. Further the
group hedges a certain portion of its experience to fluctuations in the currency value of its
foreign operations by designating borrowings which are held in foreign currencies such as the
spots, forwards, swaps and other financial derivatives. Hedge of foreign currency debt is
utilized for the purpose of the cross currency interest rate swaps to hedge the foreign currency
risk associated with borrowings (Fry and Cheah 2016).
In case of the transaction hedging group, the policy is to hedge up to 24 months
forecast transactional foreign currency risk which is based on the net US dollar exposure. The
target associated with the group is about 75% coverage for the current financial year and up
to 18 months for other currency pairs. The exposure of the group is related to the risk of

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foreign currency risk arising on forecasted transactions of the sales which is managed using
the process of the forward agreements (Halaburda and Gandal 2016).
The above graph represents the three months transactions which are the April, May
and June related to the DASH/USD currency transaction. As per the trend analysis of the
graph it can be identified that the volume of transaction was less and gradually in the middle
of the month of May and June, there is sudden increase in the rate of transaction of the
company (Liu and Tsyvinski 2018).
Answer to (B)
The specialty of fiat currency is accepted as the legal tender as it is operated on the
systematic control of the government. Fiat money is under central control and the amount of
cash is in circulation as it is under the regulation of the government.

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DASH Cryptocurreny are decentralized which means that there are certain rules and
regulations along with the responsibilities of the system. Such Cryptocurrency is not under
the regulation of the government which is a significant difference in this case.
Answer to (C)
The advantages of using DASH Cryptocurrency is that it is convenient to use,
decentralization where the network is distributed among the participants where computer
mining nodes is the members of the system. The operating cost of the usage of
Cryptocurrency is low and further transparency. The disadvantages of the usage of
Cryptocurrecy is that the volatility is very high, not widely accepted around the world and
further exits the large risk of investing (Hileman and Rauchs 2017).
Answer to (D)
The Diageo Company must adopt certain strategies for the integration of the
Cryptocurrency into the financial structures of international business. It is needed to optimize
the practices of Cryptocurrency of the organization and the further risks of the business must
be analyzed which must be minimized at any cost (Narayanan et al. 2016).

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Conclusion
From the above discussion it can be concluded that the usage of the Cryptocurrency
must be compromised by the Diageo Company. As per the analysis of the financial report of
the company it is required to increase the transactions of the foreign currency. The analysis of
the graph containing the details of the transaction of Dash/USD have performed in the
following discussion.

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References:
Abramaowicz, M., 2016. Cryptocurrency-based law. Ariz. L. Rev., 58, p.359.
Fry, J. and Cheah, E.T., 2016. Negative bubbles and shocks in cryptocurrency markets.
International Review of Financial Analysis, 47, pp.343-352.
Halaburda, H. and Gandal, N., 2016. Competition in the cryptocurrency market. Available at
SSRN 2506463.
Hileman, G. and Rauchs, M., 2017. Global cryptocurrency benchmarking study. Cambridge
Centre for Alternative Finance, 33.
Liu, Y. and Tsyvinski, A., 2018. Risks and returns of cryptocurrency (No. w24877). National
Bureau of Economic Research.
Narayanan, A., Bonneau, J., Felten, E., Miller, A. and Goldfeder, S., 2016. Bitcoin and
cryptocurrency technologies: A comprehensive introduction. Princeton University Press.