Financial Management: Investment Risks and Financial Analysis

This financial management assignment delves into the complexities of investment, focusing on risks associated with real estate investments, particularly in foreign countries. It examines political and economic risks, currency exchange rate fluctuations, and changes in tax regimes. The assignment includes detailed calculations for a property investment scenario, determining loan amounts, monthly repayments, and the impact of inflation on rental income. A comprehensive cash flow analysis is presented, considering factors such as interest rates, inflation, and currency exchange, to assess the financial viability of the investment over a 25-year period. The solution provides a step-by-step breakdown of the calculations, including the application of effective interest rates and discount rates to determine the present value of the investment.

Running head: FINANCIAL MANAGEMENT
Financial Management
Name of the Student:
Name of the University:
Author’s Note:

1FINANCIAL MANAGEMENT
Answer to Part 1:
Answer to 1.a:
Investment made by investor in real estate involves many risks, which the investors need
to be aware. Risk associated with the investment made by investment for short-term are as
follows:
Political risk- Political risks is associated with any political decisions taken by the
government in foreign countries and there can be unanticipated loss to investors resulting from
political issues. Such issues might arise on part of government to maintain hospitable climate for
their in house investments or sometimes for the payment of huge amount of public debts. The
country would not be considered beneficial for investment purpose if the political climate were
not friendly despite the strong economy of country, as it would generate unfavorable returns.
Investors would face risk of losing money in regulatory environment of country.
Economic risk- It is the risk that is associated with the financial position and economic
health of any country. The transactions concerning investment would be hampered resulting
from the economic stability of any country. It also includes the ability of country to make the
repayment of debts and some of the measures of economic risks are purchasing power,
unemployment, gross domestic product. Furthermore, it becomes impossible for the potential
investors to afford any loss resulting from the economic risks (Cameron 2017).
The above two comprises of country risks that would result in loss of investment made
and adversely affect the business opportunities. Some of the other risks that would affect the
investment made in foreign countries are associated with currency fluctuations and risk

2FINANCIAL MANAGEMENT
concerning tax proposition. It is required by investors to make themselves acquainted with the
local laws of country governing investments made by outsiders.
Answer to 1.b:
Risk of currency exchange rate- Exchange risk is the risk that is related with the
unanticipated changes in the exchange rate between two countries. There can be unexpected loss
or gain to investors resulting from the fluctuation of currencies. Some the currency risk involves
economic exposure, transaction and exposures related to translation. For the offshore investors,
currency exchange risk is an additional dimension of risks. This type of risk help in addressing
the unfavorable movements of currency that might leads to significant loss to investors. Expected
value of investment and its net value would change resulting from change in rate of currency.
Management of risks related to currency change may not be possible sometimes due to hedging.
Risk of change in tax regimes- value of investment would be significantly affected by
any change in tax legislation or tax status of the offshore country. Return to investment and
funds held by investors would be affected by change in the structure of tax. Investing of funds
associated with tax risks by investors and this would draw the attention of potential investors. It
cannot be guaranteed that proposed tax provisions would endure indefinitely at the time
investment is made. The valuation of tax and their concessions varies depending upon the
circumstances. All this would lead to constrain growth of the funds that is invested (Subedi
2016).

3FINANCIAL MANAGEMENT
Answer to Part 2:
Answer to 2.a:
Particulars Amount
Loan for Property (in AUD) A 500000
SGD/AUD Exchange Rate B 0.92
Loan for Property (in SGD) C=A/B 543478
Less: Down Payment @20% D=Cx20% 108696
Balance Loan Amount E=C-D 434783
Interest Rate in Singapore F 1.50%
Compounding Period p.a. G 12
Effective Annual Rate H=[(1+F/G)^G] - 1 1.51%
Monthly EAR I=H/12 0.13%
Loan Period (in years) J 25
Total Compouding periods K=Jx12 300
Monthly Loan Repayment
L=(IxE)/1-[(1+I)^-
K] 1741
Answer to 2.b:
Particulars Amount
Yearly Inflation Rate A 2.40%
Compounding Period p.a. B 12
Effective Inflation Rate
C=[(1+A/
B)^B]-1 2.43%
Monthly Effective Inflation Rate I=H/12 0.20%

4FINANCIAL MANAGEMENT
Perio
d
Net
Monthly
Rent
Inflatio
n Rate
Inflated
Rent
Exchang
e Rate
Rent in
SGD
Loan
Repaymen
t (in SGD)
NET
Monthly
SGD Cash
Flow

5FINANCIAL MANAGEMENT
A B C
D=Bx(1+C
) E F=D/E G H=F-G
1 2000 0.20% 2004 0.92 2178 1741 437
2 2004 0.20% 2008 0.92 2183 1741 442
3 2008 0.20% 2012 0.92 2187 1741 446
4 2012 0.20% 2016 0.92 2192 1741 451
5 2016 0.20% 2020 0.92 2196 1741 455
6 2020 0.20% 2024 0.92 2200 1741 459
7 2024 0.20% 2028 0.92 2205 1741 464
8 2028 0.20% 2033 0.92 2209 1741 468
9 2033 0.20% 2037 0.92 2214 1741 473
10 2037 0.20% 2041 0.92 2218 1741 477
11 2041 0.20% 2045 0.92 2223 1741 482
12 2045 0.20% 2049 0.92 2227 1741 486
13 2049 0.20% 2053 0.92 2232 1741 491
14 2053 0.20% 2057 0.92 2236 1741 495
15 2057 0.20% 2062 0.92 2241 1741 500
16 2062 0.20% 2066 0.92 2245 1741 504
17 2066 0.20% 2070 0.92 2250 1741 509
18 2070 0.20% 2074 0.92 2254 1741 513
19 2074 0.20% 2078 0.92 2259 1741 518
20 2078 0.20% 2082 0.92 2264 1741 523
21 2082 0.20% 2087 0.92 2268 1741 527
22 2087 0.20% 2091 0.92 2273 1741 532
23 2091 0.20% 2095 0.92 2277 1741 536
24 2095 0.20% 2099 0.92 2282 1741 541
25 2099 0.20% 2104 0.92 2287 1741 546
26 2104 0.20% 2108 0.92 2291 1741 550
27 2108 0.20% 2112 0.92 2296 1741 555
28 2112 0.20% 2116 0.92 2300 1741 559
29 2116 0.20% 2121 0.92 2305 1741 564
30 2121 0.20% 2125 0.92 2310 1741 569
31 2125 0.20% 2129 0.92 2314 1741 573
32 2129 0.20% 2134 0.92 2319 1741 578
33 2134 0.20% 2138 0.92 2324 1741 583
34 2138 0.20% 2142 0.92 2328 1741 588
35 2142 0.20% 2147 0.92 2333 1741 592
36 2147 0.20% 2151 0.92 2338 1741 597
37 2151 0.20% 2155 0.92 2343 1741 602
38 2155 0.20% 2160 0.92 2347 1741 606
39 2160 0.20% 2164 0.92 2352 1741 611
40 2164 0.20% 2168 0.92 2357 1741 616

6FINANCIAL MANAGEMENT
41 2168 0.20% 2173 0.92 2362 1741 621
42 2173 0.20% 2177 0.92 2366 1741 625
43 2177 0.20% 2181 0.92 2371 1741 630
44 2181 0.20% 2186 0.92 2376 1741 635
45 2186 0.20% 2190 0.92 2381 1741 640
46 2190 0.20% 2195 0.92 2386 1741 645
47 2195 0.20% 2199 0.92 2390 1741 649
48 2199 0.20% 2204 0.92 2395 1741 654
49 2204 0.20% 2208 0.92 2400 1741 659
50 2208 0.20% 2213 0.92 2405 1741 664
51 2213 0.20% 2217 0.92 2410 1741 669
52 2217 0.20% 2222 0.92 2415 1741 674
53 2222 0.20% 2226 0.92 2420 1741 679
54 2226 0.20% 2231 0.92 2424 1741 684
55 2231 0.20% 2235 0.92 2429 1741 688
56 2235 0.20% 2240 0.92 2434 1741 693
57 2240 0.20% 2244 0.92 2439 1741 698
58 2244 0.20% 2249 0.92 2444 1741 703
59 2249 0.20% 2253 0.92 2449 1741 708
60 2253 0.20% 2258 0.92 2454 1741 713
61 2258 0.20% 2262 0.92 2459 1741 718
62 2262 0.20% 2267 0.92 2464 1741 723
63 2267 0.20% 2271 0.92 2469 1741 728
64 2271 0.20% 2276 0.92 2474 1741 733
65 2276 0.20% 2281 0.92 2479 1741 738
66 2281 0.20% 2285 0.92 2484 1741 743
67 2285 0.20% 2290 0.92 2489 1741 748
68 2290 0.20% 2294 0.92 2494 1741 753
69 2294 0.20% 2299 0.92 2499 1741 758
70 2299 0.20% 2304 0.92 2504 1741 763
71 2304 0.20% 2308 0.92 2509 1741 768
72 2308 0.20% 2313 0.92 2514 1741 773
73 2313 0.20% 2318 0.92 2519 1741 778
74 2318 0.20% 2322 0.92 2524 1741 783
75 2322 0.20% 2327 0.92 2530 1741 789
76 2327 0.20% 2332 0.92 2535 1741 794
77 2332 0.20% 2337 0.92 2540 1741 799
78 2337 0.20% 2341 0.92 2545 1741 804
79 2341 0.20% 2346 0.92 2550 1741 809
80 2346 0.20% 2351 0.92 2555 1741 814
81 2351 0.20% 2356 0.92 2560 1741 819
82 2356 0.20% 2360 0.92 2566 1741 825
83 2360 0.20% 2365 0.92 2571 1741 830

7FINANCIAL MANAGEMENT
84 2365 0.20% 2370 0.92 2576 1741 835
85 2370 0.20% 2375 0.92 2581 1741 840
86 2375 0.20% 2379 0.92 2586 1741 845
87 2379 0.20% 2384 0.92 2592 1741 851
88 2384 0.20% 2389 0.92 2597 1741 856
89 2389 0.20% 2394 0.92 2602 1741 861
90 2394 0.20% 2399 0.92 2607 1741 866
91 2399 0.20% 2404 0.92 2613 1741 872
92 2404 0.20% 2408 0.92 2618 1741 877
93 2408 0.20% 2413 0.92 2623 1741 882
94 2413 0.20% 2418 0.92 2629 1741 888
95 2418 0.20% 2423 0.92 2634 1741 893
96 2423 0.20% 2428 0.92 2639 1741 898
97 2428 0.20% 2433 0.92 2644 1741 904
98 2433 0.20% 2438 0.92 2650 1741 909
99 2438 0.20% 2443 0.92 2655 1741 914
100 2443 0.20% 2448 0.92 2661 1741 920
101 2448 0.20% 2453 0.92 2666 1741 925
102 2453 0.20% 2458 0.92 2671 1741 930
103 2458 0.20% 2463 0.92 2677 1741 936
104 2463 0.20% 2468 0.92 2682 1741 941
105 2468 0.20% 2473 0.92 2688 1741 947
106 2473 0.20% 2478 0.92 2693 1741 952
107 2478 0.20% 2483 0.92 2698 1741 957
108 2483 0.20% 2488 0.92 2704 1741 963
109 2488 0.20% 2493 0.92 2709 1741 968
110 2493 0.20% 2498 0.92 2715 1741 974
111 2498 0.20% 2503 0.92 2720 1741 979
112 2503 0.20% 2508 0.92 2726 1741 985
113 2508 0.20% 2513 0.92 2731 1741 990
114 2513 0.20% 2518 0.92 2737 1741 996
115 2518 0.20% 2523 0.92 2742 1741 1001
116 2523 0.20% 2528 0.92 2748 1741 1007
117 2528 0.20% 2533 0.92 2754 1741 1013
118 2533 0.20% 2538 0.92 2759 1741 1018
119 2538 0.20% 2543 0.92 2765 1741 1024
120 2543 0.20% 2549 0.92 2770 1741 1029
Answer 2.c:
Particulars Amount

8FINANCIAL MANAGEMENT
Annual Interest Rate in Australia A 4.00%
Compounding Period p.a. B 12
Effective Interest Rate
C=[(1+A/
B)^B]-1 4.07%
Discount Rate I=H/12 0.34%
Perio
d
Initial
Investment
in SGD
NET Monthly
SGD Cash Flow
Total
Monthly
Cash Flow
Discoun
t Rate
Discounted
Cash Flow
A B C D=B+C E F=D/(1+E)^A
0 -543478 0 -543478 0.34% -543478
1 0 437 437 0.34% 436
2 0 442 442 0.34% 439
3 0 446 446 0.34% 442
4 0 451 451 0.34% 445
5 0 455 455 0.34% 447
6 0 459 459 0.34% 450
7 0 464 464 0.34% 453
8 0 468 468 0.34% 456
9 0 473 473 0.34% 459
10 0 477 477 0.34% 461
11 0 482 482 0.34% 464
12 0 486 486 0.34% 467
13 0 491 491 0.34% 470
14 0 495 495 0.34% 472
15 0 500 500 0.34% 475
16 0 504 504 0.34% 478
17 0 509 509 0.34% 480
18 0 513 513 0.34% 483
19 0 518 518 0.34% 486
20 0 523 523 0.34% 488
21 0 527 527 0.34% 491
22 0 532 532 0.34% 494
23 0 536 536 0.34% 496
24 0 541 541 0.34% 499
25 0 546 546 0.34% 501
26 0 550 550 0.34% 504
27 0 555 555 0.34% 506

9FINANCIAL MANAGEMENT
28 0 559 559 0.34% 509
29 0 564 564 0.34% 511
30 0 569 569 0.34% 514
31 0 573 573 0.34% 516
32 0 578 578 0.34% 519
33 0 583 583 0.34% 521
34 0 588 588 0.34% 524
35 0 592 592 0.34% 526
36 0 597 597 0.34% 528
37 0 602 602 0.34% 531
38 0 606 606 0.34% 533
39 0 611 611 0.34% 535
40 0 616 616 0.34% 538
41 0 621 621 0.34% 540
42 0 625 625 0.34% 542
43 0 630 630 0.34% 545
44 0 635 635 0.34% 547
45 0 640 640 0.34% 549
46 0 645 645 0.34% 552
47 0 649 649 0.34% 554
48 0 654 654 0.34% 556
49 0 659 659 0.34% 558
50 0 664 664 0.34% 560
51 0 669 669 0.34% 563
52 0 674 674 0.34% 565
53 0 679 679 0.34% 567
54 0 684 684 0.34% 569
55 0 688 688 0.34% 571
56 0 693 693 0.34% 573
57 0 698 698 0.34% 576
58 0 703 703 0.34% 578
59 0 708 708 0.34% 580
60 0 713 713 0.34% 582
61 0 718 718 0.34% 584
62 0 723 723 0.34% 586
63 0 728 728 0.34% 588
64 0 733 733 0.34% 590
65 0 738 738 0.34% 592
66 0 743 743 0.34% 594
67 0 748 748 0.34% 596
68 0 753 753 0.34% 598
69 0 758 758 0.34% 600
70 0 763 763 0.34% 602

10FINANCIAL MANAGEMENT
71 0 768 768 0.34% 604
72 0 773 773 0.34% 606
73 0 778 778 0.34% 608
74 0 783 783 0.34% 610
75 0 789 789 0.34% 612
76 0 794 794 0.34% 613
77 0 799 799 0.34% 615
78 0 804 804 0.34% 617
79 0 809 809 0.34% 619
80 0 814 814 0.34% 621
81 0 819 819 0.34% 623
82 0 825 825 0.34% 625
83 0 830 830 0.34% 626
84 0 835 835 0.34% 628
85 0 840 840 0.34% 630
86 0 845 845 0.34% 632
87 0 851 851 0.34% 633
88 0 856 856 0.34% 635
89 0 861 861 0.34% 637
90 0 866 866 0.34% 639
91 0 872 872 0.34% 640
92 0 877 877 0.34% 642
93 0 882 882 0.34% 644
94 0 888 888 0.34% 645
95 0 893 893 0.34% 647
96 0 898 898 0.34% 649
97 0 904 904 0.34% 650
98 0 909 909 0.34% 652
99 0 914 914 0.34% 654
100 0 920 920 0.34% 655
101 0 925 925 0.34% 657
102 0 930 930 0.34% 658
103 0 936 936 0.34% 660
104 0 941 941 0.34% 662
105 0 947 947 0.34% 663
106 0 952 952 0.34% 665
107 0 957 957 0.34% 666
108 0 963 963 0.34% 668
109 0 968 968 0.34% 669
110 0 974 974 0.34% 671
111 0 979 979 0.34% 672
112 0 985 985 0.34% 674
113 0 990 990 0.34% 675

11FINANCIAL MANAGEMENT
114 0 996 996 0.34% 677
115 0 1001 1001 0.34% 678
116 0 1007 1007 0.34% 680
117 0 1013 1013 0.34% 681
118 0 1018 1018 0.34% 683
119 0 1024 1024 0.34% 684
120 0 1029 1029 0.34% 685
IRR -3%
Answer to 2.d:
Particulars Amount
Property Cost in AUD A 500000
Monthly Effective Inflation Rate B 0.20%
Total Compounding Period C=10x12 120
Future Value of Property in AUD D=Ax(1+B)^C 637160
Exchange Rate E 0.92
Future Value of Property in SGD F=D/E 692565
Perio
d
Initial
Investment
in SGD
NET Monthly
SGD Cash Flow
Future Value
of Property
in SGD
Total
Monthly
Cash Flow
Discount
Rate
Discounted
Cash Flow
A B C D E=B+C+D F G=E/(1+F)^A
0 -543478 0 0 -543478 0.34% -543478
1 0 437 0 437 0.34% 436
2 0 442 0 442 0.34% 439
3 0 446 0 446 0.34% 442
4 0 451 0 451 0.34% 445
5 0 455 0 455 0.34% 447
6 0 459 0 459 0.34% 450
7 0 464 0 464 0.34% 453
8 0 468 0 468 0.34% 456
9 0 473 0 473 0.34% 459
10 0 477 0 477 0.34% 461

12FINANCIAL MANAGEMENT
11 0 482 0 482 0.34% 464
12 0 486 0 486 0.34% 467
13 0 491 0 491 0.34% 470
14 0 495 0 495 0.34% 472
15 0 500 0 500 0.34% 475
16 0 504 0 504 0.34% 478
17 0 509 0 509 0.34% 480
18 0 513 0 513 0.34% 483
19 0 518 0 518 0.34% 486
20 0 523 0 523 0.34% 488
21 0 527 0 527 0.34% 491
22 0 532 0 532 0.34% 494
23 0 536 0 536 0.34% 496
24 0 541 0 541 0.34% 499
25 0 546 0 546 0.34% 501
26 0 550 0 550 0.34% 504
27 0 555 0 555 0.34% 506
28 0 559 0 559 0.34% 509
29 0 564 0 564 0.34% 511
30 0 569 0 569 0.34% 514
31 0 573 0 573 0.34% 516
32 0 578 0 578 0.34% 519
33 0 583 0 583 0.34% 521
34 0 588 0 588 0.34% 524
35 0 592 0 592 0.34% 526
36 0 597 0 597 0.34% 528
37 0 602 0 602 0.34% 531
38 0 606 0 606 0.34% 533
39 0 611 0 611 0.34% 535
40 0 616 0 616 0.34% 538
41 0 621 0 621 0.34% 540
42 0 625 0 625 0.34% 542
43 0 630 0 630 0.34% 545
44 0 635 0 635 0.34% 547
45 0 640 0 640 0.34% 549
46 0 645 0 645 0.34% 552
47 0 649 0 649 0.34% 554
48 0 654 0 654 0.34% 556
49 0 659 0 659 0.34% 558
50 0 664 0 664 0.34% 560
51 0 669 0 669 0.34% 563
52 0 674 0 674 0.34% 565

13FINANCIAL MANAGEMENT
53 0 679 0 679 0.34% 567
54 0 684 0 684 0.34% 569
55 0 688 0 688 0.34% 571
56 0 693 0 693 0.34% 573
57 0 698 0 698 0.34% 576
58 0 703 0 703 0.34% 578
59 0 708 0 708 0.34% 580
60 0 713 0 713 0.34% 582
61 0 718 0 718 0.34% 584
62 0 723 0 723 0.34% 586
63 0 728 0 728 0.34% 588
64 0 733 0 733 0.34% 590
65 0 738 0 738 0.34% 592
66 0 743 0 743 0.34% 594
67 0 748 0 748 0.34% 596
68 0 753 0 753 0.34% 598
69 0 758 0 758 0.34% 600
70 0 763 0 763 0.34% 602
71 0 768 0 768 0.34% 604
72 0 773 0 773 0.34% 606
73 0 778 0 778 0.34% 608
74 0 783 0 783 0.34% 610
75 0 789 0 789 0.34% 612
76 0 794 0 794 0.34% 613
77 0 799 0 799 0.34% 615
78 0 804 0 804 0.34% 617
79 0 809 0 809 0.34% 619
80 0 814 0 814 0.34% 621
81 0 819 0 819 0.34% 623
82 0 825 0 825 0.34% 625
83 0 830 0 830 0.34% 626
84 0 835 0 835 0.34% 628
85 0 840 0 840 0.34% 630
86 0 845 0 845 0.34% 632
87 0 851 0 851 0.34% 633
88 0 856 0 856 0.34% 635
89 0 861 0 861 0.34% 637
90 0 866 0 866 0.34% 639
91 0 872 0 872 0.34% 640
92 0 877 0 877 0.34% 642
93 0 882 0 882 0.34% 644
94 0 888 0 888 0.34% 645
95 0 893 0 893 0.34% 647

14FINANCIAL MANAGEMENT
96 0 898 0 898 0.34% 649
97 0 904 0 904 0.34% 650
98 0 909 0 909 0.34% 652
99 0 914 0 914 0.34% 654
100 0 920 0 920 0.34% 655
101 0 925 0 925 0.34% 657
102 0 930 0 930 0.34% 658
103 0 936 0 936 0.34% 660
104 0 941 0 941 0.34% 662
105 0 947 0 947 0.34% 663
106 0 952 0 952 0.34% 665
107 0 957 0 957 0.34% 666
108 0 963 0 963 0.34% 668
109 0 968 0 968 0.34% 669
110 0 974 0 974 0.34% 671
111 0 979 0 979 0.34% 672
112 0 985 0 985 0.34% 674
113 0 990 0 990 0.34% 675
114 0 996 0 996 0.34% 677
115 0 1001 0 1001 0.34% 678
116 0 1007 0 1007 0.34% 680
117 0 1013 0 1013 0.34% 681
118 0 1018 0 1018 0.34% 683
119 0 1024 0 1024 0.34% 684
120 0 1029 692565 693594 0.34% 461814
IRR -0.02%

15FINANCIAL MANAGEMENT
Reference:
Cameron, P., 2017. International Energy Investment Law: The Pursuit of Stability. OUP
Catalogue.
Subedi, S.P., 2016. International investment law: reconciling policy and principle. Bloomsbury
Publishing.