Emirates Group: Factors Affecting Exchange Rates and Capital Costs

This report provides a comprehensive financial analysis of the Emirates Group, focusing on the impact of exchange rates and cost of capital on its investment strategies. The report examines the main factors influencing exchange rates, including Purchasing Power Parity (PPP) and Interest Rate Parity (IRP), and how these factors affect the airline's operations. It also delves into the factors that influence the cost of capital for Emirates Group when investing within a country, such as inflation rates, interest rates, country's balance of payment, terms of trades, political stability, and recession. Furthermore, it discusses the factors that influence the cost of capital, including risk-free interest rates, business risk, and financial risk. The analysis also considers other operational factors, like liquidity and shareholder preferences, and provides a framework for calculating the weighted average cost of capital (WACC). The report concludes by emphasizing the importance of understanding these financial dynamics for effective investment planning and overall business success within the aviation sector.

Assessment

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
TASK 1............................................................................................................................................1
Main factors affecting exchange rates including the Purchasing Power Parity (PPP) and
Interest Rate Parity (IPR).............................................................................................................1
TASK 2............................................................................................................................................2
What factors influence the cost of capital by Emirates Group while investing within the
country.........................................................................................................................................2
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
For a business, maintaining of the exchange rates, this will help in setting up the priorities of
the customers and setting a purchasing mindset. This will help the setting of the positive business
environment that will help in carrying out of the business operations in most effective and
suitable manner. The current assignment is presented in context of The Emirates Group. It is a
UAE based Airline service provider firm.
The maintenance of purchasing power parity PPP and interest rate parity IRP. Besides this,
the influence it lays on the operations of a business enterprise will lead to the assessment of
investment processes that will lead to setting up of overseas project by an MNC. This will help in
setting up of the operations that are been carried out by organisation.
MAIN BODY
TASK 1
Main factors affecting exchange rates including the Purchasing Power Parity (PPP) and Interest
Rate Parity (IPR)
There are various tools and factors that impacts the overall operations and setting up of the
operations within an organisation. In order to maintain the exchange rates of the organisation, the
Selected Airline firm is required to look after the proper assessment of the factors that impacts
the overall planning of the operations and thus, will lead the enterprise to carry out the operations
in most effective way (Jurek and Stafford, 2015). Some major factors that impacts the
Purchasing Power Parity (PPP) and Interest rate Parity (IPR) are:
 Inflation rate: This is the most crucial factor that is required to be undertaken by The
Emirates Group. A country with low inflation rate will be seen as a good investment
option. This indicates that the organisation will see a faster growth in that country. The
high level of inflation can lead to depreciation and causes an increase in higher interest
rate.
Interest rates: It is another important factor that impacts the valuation of currency and exchange
rates within a country. It leads the rise in valuation of a country’s currency and hence will lead to
the proper planning of the setting up of business with higher exchange rates in a country. The
interest rate parity will help in improving overall operations of the organisation to meet
operational requirements of an organisation (Eades and Eades, 2017).
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 Country’s balance of Payment: A countries current financial positioning will also make
it an important option as the country for investing money and resources by an
organisation like Emirates Group. The high spending of currency rather than the earnings
from the sales will lead the organisation to e reluctant in setting up their business within
that country.
Terms of trades: The terms and regulations that are been carried out within the firm will help in
setting up of the operations that will help in improving the overall operations which will help in
generation of high revenue by the firm and hence also influences the country’s currency
exchange rates (Berger, Chen and Li, 2018).
 Political stability: The governmental support is also a important factor that will
influence the overall operations of a business enterprise like Emirates Group. Any sort of
political turmoil will lead the organisation to get impacted and thus, will influence the
overall operations related to investment and expansion of the firm.
 Recession: As the valuation of a currency will increase, this will make the investor firms
to increase their demands. This will lead the organisations to have a high rate of exchange
rate that will help in proper increase in valuation and overall growth performance of the
organisations. Low recession will also indicate the high level of purchasing power of
people towards the services and operations offered by Emirates Group.
TASK 2
What factors influence the cost of capital by Emirates Group while investing within the country
The cost of capital will look after the proper assessment of the accounts or funds including
the debts and equities of a company that is owned by a company. From a investors point of view,
it is the required rate of portfolio related to a company’s existing securities that will help in
proper planning of the operational plans and setting up of financial benchmarks that will help in
meeting of new projects to meet.
In order to make the investment to be more effective and fruitful for an organisation, the
expected return of investments is required to be more effective than the cost of investments that
are been applied within the organisation. This will help in increasing the investment
opportunities for both, company and country. It can also be termed as the opportunity cost for a
firm like Emirates Group to raise their funding cost that will help in proper assessment of the
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actual cost of debt for selected organisation. It also supported the proper management of the
equities and debts owned by an organisation and thus will lead the firm to carry the functional
capabilities and setting up of the operations. Once the cost of debt and equity is been determined,
the weighted average cost of capital is calculated that will help in setting up of discount rates that
will help in properly improve the core performance of a firm (Core, Hail and Verdi, 2015). Some
major factors that impacts and influence cost of capital for an organisation like Emirates are:
 Risk free rate of interest (I): Free cash flows and supporting further prevention of any
sort of risk factors can impact the overall operations and setting up of interest rates that
will influence the operations of the selected business enterprises. But when a compact
earns an interest rate o the risk free or default free security, it is known as Risk free rate
of interest. This will lead the organisation to set a proper environment that will help in
gaining the effective operational and financial stability. This will help in carrying out of
the investment operations that will lead to the management of an organisation to have a
good rise in accessibility to growth opportunities of selected business enterprise.
 Business risk (B): It is the potential possessed by an organisation to have a high level of
growth and earn back the return of investments that are been placed by an enterprise.
This is a very important factor that helps in satisfying the investors and thus will lead the
organisation to improve the overall setting up of a business enterprise like Emirates
Group in a country. The business risk is greatly based on the operations, market
conditions and clarity regarding the needs and requirements of the customers this will
help in setting up of a positive mission and carrying out of business operations in most
effective way. If the business risk is yielding a positive output, investors will readily put
their resources that will help in carrying out of the growth and development operations
of the organisation.
Financial risk (F): This is strictly based on the financial planning and structuring of cash flow
within a market as well as an organisation. This earning will help in placing the overall
operations of the organisation and thus will lead the enterprise to have earning after paying the
debts. This will help in setting up of the capital structure that will help in placing the operations
and thus helps in meeting the set business objectives in most effective and significant manner
(Li, 2015). It states that is the debt is present in capital structuring of a firm, the earning that is
been gains after the payment of debts should be able to satisfy the investors. This will help in
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gaining more and more financial resources to execute the business operations related to Emirates
Group.
Other considerable factors (o): There are many other operational and considerable factors that
are been undertaken by an enterprise like Emirates Group to carry out the operations that will
help in suitable planning of the overall investment and growth measures that are been carried out
by the organisation. The factors like Liquidity, shareholder’s preference and timing of returning
the interest that will help the organisation to set the proper planning o operations and carrying
out the growth operations of the organisation. This will help in setting a good assessment of
operations that will lead an organisation like Emirates Group to improve their functionality and
have a significant influence on cost of capital. This will help in improving the overall operations
and this will lead the organisation to set effective goals that will help in having the good
planning of the business operations that will help in leading the execution of functionalities in
much suitable way (Frank and Shen, 2016).
All these factors will lead the organisation to set the proper assessment of the business
operations. All these operations will lead the organisation to consider their cost of capital ion
most effective and suitable way. This can be further calculated as
K= I+B+F+o
This will help The Emirates group to develop suitable planning structure and carrying out
of operations in most effective way in order to improve and increase the investments in the
overseas market that will lead the organisation and thus, will help in setting up of proper
operational goals and thus will lead the organisation to lead a good accessibility and achievement
of operational goals that are been set within an organisation. Emirates group is required to look
after the proper planning of the operations and thus, will lead the enterprise to have high level of
operational capability and setting up of the operations that will lead the organisation in most
suitable way.
It helps the organisation to set proper guidelines which will help in improving the overall
planning of growth and expansion measures that will help in meeting the operational
requirements of the organisation (Baker and Wurgler, 2015). This will help in carrying out of the
growth and development measures that are been carried out by MNC organisation like Emirates
Group. It assists the enterprise to improve its operations in the aviation sector and meeting the
needs and requirements of the organisation in most effective way.
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CONCLUSION
On the basis of these assessment, this can be said that the exchange rates and purchasing
power parity of people and Interest rate parity that helps in proper assessment of the financial
management of the organisation and thus, will lead the organisation to carry effective measures
that will help in suitable planning of services and will lead the organisation to have a goods
accessibility of operations that are been carried out by the enterprise. Besides this, the assessment
of factors carrying out the investment in overseas project by selected firm is evaluated to identify
the feasibility of investment measures that are been carried out by the firm.
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REFERENCES
Books and Journals
Baker, M. and Wurgler, J., 2015. Do strict capital requirements raise the cost of capital? Bank
regulation, capital structure, and the low-risk anomaly. American Economic
Review. 105(5). pp.315-20.
Berger, P.G., Chen, H.J. and Li, F., 2018. Firm specific information and the cost of equity
capital. Feng, Firm Specific Information and the Cost of Equity Capital (April 2, 2018).
Core, J.E., Hail, L. and Verdi, R.S., 2015. Mandatory disclosure quality, inside ownership, and
cost of capital. European Accounting Review. 24(1). pp.1-29.
Eades, K.M. and Eades, K.M., 2017. Mead Corporation: Cost of Capital. Darden Business
Publishing Cases. pp.1-12.
Frank, M.Z. and Shen, T., 2016. Investment and the weighted average cost of capital. Journal of
Financial Economics. 119(2). pp.300-315.
Jurek, J.W. and Stafford, E., 2015. The cost of capital for alternative investments. The Journal of
Finance. 70(5). pp.2185-2226.
Li, X., 2015. Accounting conservatism and the cost of capital: An international analysis. Journal
of Business Finance & Accounting. 42(5-6). pp.555-582.
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