International Finance Report: CSL, BHP, and Currency Risk Analysis

This report provides a comprehensive analysis of international finance, focusing on currency risk management and investment strategies. It begins with a case study involving Blades Inc., evaluating the financial implications of investing in Thailand versus converting funds immediately, considering factors like interest rates and currency depreciation. The report then delves into the foreign currency exposure management of two companies, CSL Ltd. and BHP Billiton Limited, examining their strategies to mitigate transaction and translation risks. It compares the impact of exchange rate fluctuations on the share prices of these companies and discusses the advantages and disadvantages of secondary stock listings, specifically referencing BHP's dual listing. The report concludes by recommending a secondary listing for CSL to facilitate capital raising and business expansion.

Running head: INTERNATIONAL FINANCE
International Finance
Name of the Student:
Name of the University:
Authors Note:

2INTERNATIONAL FINANCE
Table of Contents
Part A.........................................................................................................................................3
Answer to Question 1.................................................................................................................3
Answer to Question 2.................................................................................................................3
Answer to Question 3.................................................................................................................3
Answer to Question 4.................................................................................................................5
PART B:.....................................................................................................................................5
Answer to question 1..................................................................................................................5
Answer to question 2..................................................................................................................8
Answer to question 3..................................................................................................................8
Reference..................................................................................................................................11
Appendix..................................................................................................................................12

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Part A
Answer to Question 1
In case the net cash flows that are denominated in the currency of baht are converted
to the dollar then the Blades Inc. will not be subject to the anticipated depreciation in the baht
that might result into the transformation of baht into smaller amount of dollars. This is
because of the fact that the higher interest rate prevalent in Thailand suggests uncertainty of
their economy. Hence, it will be prudent not to invest excess funds of the company at higher
interest rates in Thailand, rather the excess funds should be invested as investments at 8%
interest in Australia itself.
Answer to Question 2
If in case, the generated cash flows from Thailand are put in Thailand as investments
then the Blades Inc. will need to have a loan for the extra funds in the Australia for a 10
percent interest rate. This additional fund will be necessary in order to support the operations
in Australia. In addition, the Blades will not be capable of making investments of the funds
that are remitted in the Australia at an 8 percent interest rate (Frieden 2015). If the baht
currency decreases in value by 5 percent for the next year as this is presently expected, then
the Thailand investments is expected to render a return of approximately ((1.15X0.95)-1) 9.25
percent.

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Answer to Question 3
The analysis is provided below between the two option in investment in Thailand and
converting funds immediately. If the Plan 2 is accepted then there will be a gain of
$8389001.34.
Plan 1: Investment in Thailand
Particulars Amount
Calculation of revenue denominated in baht
Speedos price per pair THB 4,594.00
number of pair of speedos 180000
Revenue in Baht THB 826,920,000.00
Cash Flow available in baht
Revenue in Baht THB 826,920,000.00
Cost of goods sold THB 516,780,000.00
Cash flow available in baht THB 310,140,000.00
Calculation of dollar receipt as baht is converted in dollar in
one year
Cash flow available in baht THB 310,140,000.00
Interest earned on baht for a one year period (15%) THB 46,521,000.00
The conversion that will be made in one year THB 356,661,000.00
Expected spot rate in one year 0.0361
Expected dollar receipt in a period of one year $ 12,875,462.10
Plan 2: Convert funds immediately
Particulars Amount
Revenue in Baht THB 826,920,000.00
Cost of goods sold THB (516,780,000.00)
Cash flow available in baht THB 310,140,000.00
Current spot rate $ 0.03810
Dollar receipt at current value $ 11,816,334.00
Interest on investment for one year $ 945,306.72
Dollar receipt in one year period $ 12,761,640.72

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Comparison of the two Plan
Plan 1 $ 12,875,462.10
Plan 2 $ 12,761,640.72
Difference $ 113,821.38
On comparing the two plan, the Plan 1 should be accepted.
Answer to Question 4
Revised return on Investment in Thailand
Particulars Amount
Calculation of revenue denominated in baht
Speedos price per pair THB 4,594.00
number of pair of speedos 180000
Revenue in Baht THB 826,920,000.00
Cash Flow available in baht
Revenue in Baht THB 826,920,000.00
Cost of goods sold THB 516,780,000.00
Cash flow available in baht THB 310,140,000.00
Calculation of dollar receipt as baht is converted in dollar in
one year
Cash flow available in baht THB 310,140,000.00
Interest earned on baht for a one-year period (15%) THB 46,521,000.00
The conversion that will be made in one year THB 356,661,000.00
Expected spot rate in one year 0.033573
Expected dollar receipt in a period of one year $ 11,974,179.75
If the currency of baht depreciates then the expected dollar receipt in one year is less
than the Plan 2. Therefore in this case Plan 2 should be accepted.
PART B:
Answer to question 1.
a) CSL LTD.:

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The company is engaged in the field of biotechnology and undertakes research,
development, manufacture and marketing of products that help in the prevention and
cure of people affected or prone to be affected by serious human medical conditions.
Some of the products that are produced by the company include antivenom, vaccines,
blood plasma derivatives.
The countries from where the company derives its revenue other than Australia
include United States, Germany, Switzerland, UK and many other countries collectively
grouped under rest of the world (Avdjiev et al. 2016).
The country from where the company derives the highest revenue outside Australia is
United States that amounted to $2850 million in the year 2017. In order to manage the
foreign currency exposure to that country for the purposes of reducing the transaction and
translation risk the steps taken by the company are as follows:
The company makes use of the constant currency that removes the effect of
movement of exchange rate that facilitates the comparability of the performance of the group.
The task is achieved in three parts:
a) The company converts the current net profit of the entities of the group which
had the reporting currencies other than the US dollars, at rates which were
applicable in the prior comparable period.(Translation effect)

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b) The company restates the material transactions were affected by the change in the
exchange rate at a rate that would have been applicable had the transaction
occurred in the prior comparable period. (Transaction period)
c) The company adjusts the current year foreign currency gains and losses.(foreign
currency effect).
The sum of the transaction effect, translation effect and foreign currency effect is the
amount by which the net profit is adjusted to calculate the result of the constant
currency.
b) BHP Billiton Limited:
An Anglo-Australian multinational company is headquartered in Melbourne, Victoria,
Australia. The company is engaged in mining, metals and petroleum. The company
was ranked the world’s largest mining company and at the same time the third largest
Australian company in terms of revenue.
The countries wherein the company generates revenue excluding Australia are
Europe, China, Japan, India, South Korea, Rest of Asia, North America, South America and
many other countries around the world grouped as rest of the world. The highest revenue

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other than Australia was generated from China that amounted to US$18875 million in the
year 2017.
The company is exposed to transaction risk as the operating costs of the locally
sourced equipment are influenced by the fluctuations in respect of the local currencies, which
primarily comprises of Australian dollar and Chilean peso. The company is also exposed to
translation risk as the company is having foreign currency denominated assets and liabilities
including certain debt and other long-term liabilities (Titman et al. 2017).
In order to mitigate the risk of foreign currency exposure and reducing the transaction
and translation risk, the majority of the company’s sales are denominated in US Dollars and
they borrow and hold surplus cash predominantly in US Dollars. Hence, those transactions
are unable to provide any foreign exchange exposure in relation to the US dollar presentation
currency of the group.
Answer to question 2.
After drawing up the chart showing the comparison of the movement of the exchange
rate and the corresponding share prices of the two companies, the results indicate that both
the company’s share prices have a negative correlation with that of the exchange rate of US
dollars. The correlation of the BHP is -0.33 and that of the CSL is -0.48. This means that with
the increase in the exchange rates the share prices drop and vice versa. Between the two
companies, the latter is more variable or responsive to the stimuli as compared to the former.
Answer to question 3.
In the following case, CSL limited has no listing on other stock exchanges whereas
BHP Limited is a duel-listed company. In addition to being listed in the Australian Stock
Exchange, it is listed on the London Stock Exchange.

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The purpose of listing for BHP limited is that it was formed in merger with Anglo-
Dutch Billiton plc. Which was already listed in the London Stock exchange and hence after
the merger it was automatically registered on the London Stock Exchange and at the same
time was a constituent of FTSE 100 index.
The advantages of a secondary listing are as follows:
a) Increased market liquidity-
Cross listing enables the company to raise capital in multiple time zones and in
multiple currencies which consequently increases the liquidity of the company and
ability to raise capital.
b) Market segmentation-
This is a process which involves dividing the large market into smaller segments with
similar needs. It helps the firm to divide the foreign investors market to gain better
access.
c) Disclosures-
It enables the firm to reduce its cost of capital because of the increased and better
information environment. As cross listing is coupled with media coverage it results in
better accounting information. They have to disclose correct and accurate information
in pursuance of cross-listing which reflects their endeavour to show case better
information availability to the investors and help them to build trust for themselves.
The disadvantages of secondary listing are as follows:
a) Costs:
There are several costs involved in cross listing i.e. direct costs and onetime costs like
registration, ongoing costs like with respect to reporting and disclosures.
b) Relative costing:

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It is the cost in respect of the reduction in the powers of the shareholders.
CSL does not have a listing in any other stock exchanges except that of the Australian
Stock Exchange. It is earnestly advised that it should get itself listed on the stock exchanges
of any other country in order to facilitate rising of further capital.
As per the information obtained from the annual reports of the company, it is seen that
it has the largest revenue coming from United States outside Australia. Hence, it is justifiable
and prudent to get listed on the stock exchange of the United States (Zaghini 2014). It will
facilitate in expanding its business further in the country as well as raise additional capital
from it as the listing will enable the shareholders to get a deeper knowledge about the
fundamentals of the company.

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Reference
Avdjiev, S., McCauley, R.N. and Shin, H.S., 2016. Breaking free of the triple coincidence in
international finance. Economic Policy, 31(87), pp.409-451.
Borio, C., Gambacorta, L. and Hofmann, B., 2017. The influence of monetary policy on bank
profitability. International Finance, 20(1), pp.48-63.
Chinn, M. and Kucko, K., 2015. The predictive power of the yield curve across countries and
time. International Finance, 18(2), pp.129-156.
Frieden, J., 2015. Banking on the world: the politics of American international finance.
Routledge.
Titman, S., Keown, A.J. and Martin, J.D., 2017. Financial management: Principles and
applications. Pearson.
Zaghini, A., 2014. Bank bonds: size, systemic relevance and the sovereign. International
Finance, 17(2), pp.161-184.

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Appendix
Particulars USD/AUD BHP CSL
Jul 05, 2015 1.3431 41.29 88.139999
Jul 12, 2015 1.3565 39.47 88.059998
Jul 19, 2015 1.3731 39.56 93.900002
Jul 26, 2015 1.3689 36.3 93.699997
Aug 02, 2015 1.3479 38.37 98.959999
Aug 09, 2015 1.3567 38.64 96.839996
Aug 16, 2015 1.3659 37.88 93.150002
Aug 23, 2015 1.3941 34.68 90.150002
Aug 30, 2015 1.4477 36.69 92.620003
Sep 06, 2015 1.4101 33.75 90.18
Sep 13, 2015 1.391 34.07 88.93
Sep 20, 2015 1.4238 34.6 90.57
Sep 27, 2015 1.4188 31.87 90.419998
Oct 04, 2015 1.3633 33.06 88.540001
Oct 11, 2015 1.3771 37.76 91.199997
Oct 18, 2015 1.386 36.06 89.300003
Oct 25, 2015 1.4006 35.75 90.389999
Nov 01, 2015 1.4187 32.89 93.790001
Nov 08, 2015 1.4022 30.75 95.32
Nov 15, 2015 1.3811 28.41 95.150002
Nov 22, 2015 1.39 29.1 98.269997
Nov 29, 2015 1.3621 26.98 99.650002
Dec 06, 2015 1.3911 26.48 98.220001
Dec 13, 2015 1.3943 23.81 99.889999
Dec 20, 2015 1.3805 23.93 103.529999
Dec 27, 2015 1.3701 26.14 103.25
Jan 03, 2016 1.4382 25.76 105.309998
Jan 10, 2016 1.4557 21.96 103.120003
Jan 17, 2016 1.4281 20.19 103.279999
Jan 24, 2016 1.4115 21.48 107.239998
Jan 31, 2016 1.4141 21.91 104
Feb 07, 2016 1.4072 22.58 105.360001
Feb 14, 2016 1.3985 22.72 103.300003
Feb 21, 2016 1.4024 23.98 101.800003
Feb 28, 2016 1.3437 22.56 102.389999
Mar 06, 2016 1.3226 27.68 102.57
Mar 13, 2016 1.3152 27.22 103.580002
Mar 20, 2016 1.332 27.42 100.099998
Mar 27, 2016 1.3039 25.64 102.199997
Apr 03, 2016 1.3234 25.65 101