Analysing International Finance for Bell Beijing Company

This report provides an analysis of international finance strategies applicable to Bell Beijing Company, a language school established in Beijing, China. It addresses the implications of fixed and floating exchange rate systems in China and Australia, respectively, and how these systems affect the company's financial position. The report discusses the conversion of profits from Yuan to Australian dollars, taxation policies, and the potential impact of Yuan devaluation. It also explores the role of the central banks in managing currency fluctuations and the use of financial markets for risk mitigation, including futures contracts. Furthermore, it examines the financing options available to the company, such as raising funds in Australian dollars, and the application of hedging tools like put options and short futures contracts. The report concludes by considering various strategies for business growth, including debt and equity financing, weighing the merits and demerits of each approach. Desklib offers this assignment solution along with other study resources for students.

Running head: INTERNATIONAL FINANCE
International Finance
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
In Response to Question 1..........................................................................................................2
In Response to Question 2..........................................................................................................2
In Response to Question 3..........................................................................................................3
In Response to Question 4..........................................................................................................3
In Response to Question 5..........................................................................................................4
In Response to Question 6..........................................................................................................4
In Response to Question 7..........................................................................................................4
Reference....................................................................................................................................6

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In Response to Question 1
International business operations involves application of currency movement of the
foreign currency which influences the financial position of the company. The same has been
applied for the case of Bell Beijing Company which will be expanding its business services in
the region of Beijing. The exchange rate in China is Fixed Exchange rate system where the
movement of the currency is fixed and the movement is based on a narrow range fixed by the
central bank./The key advantage which the company can enjoy with such exchange rate
regime is that they will see stability in the foreign currency rates. The key disadvantages is
that the current exchange rate depicted does not depict the current macroeconomic scenario in
the economy. The exchange rate followed in the Australia is the Floating exchange rate
system which takes into account all possible changing business factors and macro condition
in the currency exchange rate depicted. The exchange rate system in China will affect the
business if the Chinese Yuan Currency depreciated or devaluates with respect to the
Australian dollar which would result in loss for the Bell Beijing Company (Weale et al.
2015).
In Response to Question 2
The profit earned from the business operations in China would be converted from
Yuan Currency which is the functional currency for the company and the same would be
converted into reporting currency that is the Australian Dollar with the help of the current
exchange rate or the exchange rate policy followed. The profit or the income earned by the
company would be taxed in China and not in Australia and the same is done in order to avoid
the effect of double taxation on the business as there is tax treaty between the two economies
which avoids the cascading or the double taxation of income (Lang and Owens 2014).

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In Response to Question 3
A) The Central bank of China would allow the movement of The Yuan currency in such
a situation as such large change in the value of the Yuan currency would affect the
true value of the currency base (Dunning 2014). The reserves maintained by the
People Bank of China would be greatly influenced forcing the central bank to change
the fixed exchange rate with a different rate and a wider range of movement band.
The devaluation of the Asian currency or the Chinese currency would significantly
influence the operations of the company and the financial position of the company
(Desai 2014).
B) In the event of significant fall in the value of the Yuan currency it is the decision of
the People Bank of China the Central Bank to decide upon the new exchange rate or
to keep the exchange rate at a fixed level by buying more Yuan Currency and selling
Australian Dollars with respect to the same for keeping the exchange rate at a fixed
level. The Reserve Bank of Australia would definitely look into the various policies
followed by the Chinese Central bank at that time for managing the event wither by
devaluating the currency or selling its reserves in the open market operations (Jackson
2018).
In Response to Question 4
The exposure to financial market helps the business apply various financial products,
services and information for managing the operations of the company. The financial market
will offer various kinds of financial instruments to the company in which the company can
manage and mitigate the risk associated with company in relation to the currency exchange
rate and various kinds of business and macr4oeconomic risks associated with the business.
The company can apply futures contract in order to mitigate the financial or forex risk of the
company (Pilbeam 2018).

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In Response to Question 5
The currency in which the funding would be raised will be the Australian dollar as the
financing option would be better available for the company and at better financing terms like
interest rate, payments structure and tenure of the loans. The changing interest rate in the
Australian economy and the sudden fall in the value of the Yuan currency will result to delay
in payment of the loan instalment and the same would also affect the financial position of the
company.
In Response to Question 6
The application of put options or short futures contract on the Yuan currency would
be the best possible financial hedging tool for the company (Penrose 2017). The futures
contract is a common financial derivative hedging tool applied by the investors for mitigating
the risks associated with the underlying asset. Investors usually takes position in the financial
derivatives based on the price belief of the underlying asset so that they can mitigate or hedge
the risk associated with the same. Bell Beijing can apply various financial derivatives
instruments in managing the risk associated with the currency exchange rate so that the
financial position of the company does not get affected by the volatile foreign currency
movements (Cooper 2014).
In Response to Question 7
There are various ways for the growth of the business and the same is dependent on
the strategies followed by the management of the company. The business operations of the
company could well grow if the company has a wide variety of product portfolio and has
relevant tools and strategies for the growth of the business. The necessary capital required for
the growth of the business could be financed via debt financing in the form of loans or
borrowings and through issue of equity share by the company (Hodrick 2014). The key

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merits of debt financing over equity will be the lower interest rate charged and the key
demerit will be the increase in the financial risk of the company with additional debt
exposure along with high business and forex risk associated.

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Reference
Cooper, R.N., 2014. Exchange rate choices.
Desai, P., 2014. Financial crisis, contagion, and containment: from Asia to Argentina.
Princeton University Press.
Dunning, J.H., 2014. The Globalization of Business (Routledge Revivals): The Challenge of
the 1990s. Routledge.
Hodrick, R., 2014. The empirical evidence on the efficiency of forward and futures foreign
exchange markets. Routledge.
Jackson, K., 2018. Asian contagion: the causes and consequences of a financial crisis.
Routledge.
Lang, M. and Owens, J.P., 2014. The role of tax treaties in facilitating development and
protecting the tax base.
Penrose, E.T., 2017. Foreign Investment and the Growth of the Firm 1. In International
Business (pp. 33-48). Routledge.
Pilbeam, K., 2018. Finance & financial markets. Macmillan International Higher Education.
Weale, M., Blake, A., Christodoulakis, N., Meade, J.E. and Vines, D., 2015. Macroeconomic
policy: inflation, wealth and the exchange rate. Routledge.

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