International Investment Analysis Report: Currency and Risk Analysis

This report provides an analysis of international investment, focusing on the financial and international risks faced by companies operating internationally, such as foreign exchange risk and currency exposure risk. The report examines two Australian companies, Wesfarmers plc and BHP Billiton Company, analyzing their revenue streams, management of translation and transaction risks, and the correlation between exchange rates (USD/AUD and GBP/AUD) and their share prices. The analysis includes data from 2016 to 2018, revealing negative correlations between currency movements and share prices for both companies. The report also discusses the benefits of listing on foreign stock exchanges like NASDAQ and provides insights into how companies manage currency exposure through strategies like matching currencies, diversifying production, and using forward contracts. The conclusion emphasizes the importance of proper foreign risk management programs and the advantages of international listings for promoting business on a global scale.

RUNNING HEAD: International investment 1
Name of the student-
Assignment: International investment
University Name-

International investment 2
Table of Contents
Part-B..........................................................................................................................................................3
Introduction.............................................................................................................................................3
Correlation between exchange rate and its share price over that period.................................................6
Correlation between exchange rate and its share price over that period...............................................8
Finding for both companies related to foreign currency exposure.............................................................8
Separate listing on a foreign stock exchange...............................................................................................9
Benefits of listing company on the international foreign stock exchange...............................................9
References.................................................................................................................................................10
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Part-B
Introduction
With the ramified economic changes, there are several financial and international risks
which are faced by the companies, running their busienss on international level such as foreign
exchange risk, translational risk and currency exposure risk. In this report two companies have
been selected There are following four Australian companies have been selected for the
international financial analysis (Yahoo finance, 2018).
Wesfarmers plc
It is an Australian conglomerate company, having headquartered in Perth, Australia. It is
indulged in retail busienss to sale several types of goods and services. The present CEO of
company is Richard who takes all the imperative decisions. It is listed on the Australian stock
exchange, NASDAQ.
Revenue of Company
After analyzing the annual report of company, it is found that more than 30% of the sales of the
company come from the USA and UK.
Two listed Australian Multinational companies
Name of the company Ticker
Symbol
Price per share
(26th March
2018)
Wesfarmers Plc WES.AX 43.82
BHP Billiton Company BHP.AX 28.07
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BHP Billiton Company
It is Anglo- Australian multinational mining metals and petroleum dual-listed company, having
headquartered in Melbourne, Australia. The present CEO of company is Andrew Stewart
Mackenzie. It is listed on the Australian stock exchange, NASDA (Yahoo finance, 2018)..
Revenue of Company
The total revenue of company is 3,828.5 crores USD (2017) which is 18% higher as compared to
last year data. After analyzing the annual report of company, it is considered that 25% of the
sales of the company come from the USA and UK.
Management of translation and transaction risk
Risk Wesfarmers Plc BHP Billiton
Translation risk Company eliminating this risk
by matching the currencies of
assets and liabilities on the
consolidated balance sheet.
This risk is managed by the
movement of one currency
with that of other.
It is eliminating this risk by
grouping exposure together
and using a proxy currency. It
creates a basket of currencies
to get a near match for
eliminating this issue.
Transaction risk Wesfarmers manage this risk
by diversifying the production
process and buying raw
The financial manager of
company is diversifying
finance by accessing the
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material from the counter
countries.
capital market in various
countries. It gives flexibility to
raise capital at least cost
(Bloomberg, 2017).
Chart of the foreign currency Vs. AUD exchange rate for each of the companies
(Bloomberg, 2017).
BHP Billiton
Date
USD to
AUD % Change
BHP Billiton
Company
%
Change
17-03-2016 1.3218 42.550
24-04-2016 1.3128 -0.68% 43.210 1.55%
01-05-2016 1.3136 0.06% 43.890 1.57%
08-06-2016 1.3317 1.38% 43.980 0.21%
15-07-2016 1.3082 -1.76% 44.590 1.39%
22-08-2016 1.2970 -0.86% 44.220 -0.83%
29-09-2016 1.2807 -1.26% 44.420 0.45%
05-10-2017 1.2719 -0.69% 44.560 0.32%
12-11-2017 1.2632 -0.69% 43.730 -1.86%
19-12-2017 1.2620 -0.09% 43.720 -0.02%
19-01-2017 1.2544 -0.60% 43.820 0.23%
19-02-2017 1.2467 -0.61% 44.000 0.41%
23-03-2017 1.2391 -0.61% 42.550 -3.30%
17-03-2017 1.3218 6.67% 43.210 1.55%
24-04-2017 1.3128 -0.68% 43.890 1.57%
01-05-2017 1.3136 0.06% 43.980 0.21%
08-06-2017 1.3317 1.38% 44.590 1.39%
15-07-2017 1.3082 -1.76% 44.220 -0.83%
22-08-2017 1.2970 -0.86% 44.420 0.45%
29-09-2017 1.2807 -1.26% 44.560 0.32%
05-10-2018 1.2719 -0.69% 43.730 -1.86%
12-11-2018 1.2632 -0.69% 43.720 -0.02%
19-12-2018 1.2620 -0.09% 43.820 0.23%
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19-01-2018 1.2544 -0.60% 44.000 0.41%
19-02-2018 1.2467 -0.61% 44.099 0.22%
23-03-2018 1.2391 -0.61% 44.115 0.04%
3/17/2016
4/30/2016
6/13/2016
7/27/2016
9/9/2016
10/23/2016
12/6/2016
1/19/2017
3/4/2017
4/17/2017
5/31/2017
7/14/2017
8/27/2017
10/10/2017
11/23/2017
1/6/2018
2/19/2018
4/4/2018
5/18/2018
7/1/2018
8/14/2018
9/27/2018
11/10/2018
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
BHP Billition Company
USD to AUD
Correlation between exchange rate and its share price over that period
It is evaluated that BHP Billiton Company is having high fluctuation in its share price.
However, changes in USD to AUD are showing the negative results. Both currencies have
negative correlating with each other (Yahoo Finance, 2017).
Wesfarmers Plc
Date
GBP to
AUD % Change Wesfarmers
%
Change
17-03-2016 1.7852 42.549999
24-04-2016 1.7825 -0.15% 43.209999 1.55%
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01-05-2016 1.7797 -0.15% 43.889999 1.57%
08-06-2016 1.7770 -0.15% 43.98 0.21%
15-07-2016 1.7742 -0.16% 44.59 1.39%
22-08-2016 1.7715 -0.16% 44.220001 -0.83%
29-09-2016 1.7687 -0.16% 44.419998 0.45%
05-10-2017 1.7660 -0.16% 44.560001 0.32%
12-11-2017 1.7632 -0.16% 43.73 -1.86%
19-12-2017 1.7604 -0.16% 43.720001 -0.02%
19-01-2017 1.7577 -0.16% 43.82 0.23%
19-02-2017 1.7465 -0.64% 44 0.41%
23-03-2017 1.7455 -0.06% 42.549999 -3.30%
17-03-2017 1.7673 1.25% 43.209999 1.55%
24-04-2017 1.7618 -0.31% 43.889999 1.57%
01-05-2017 1.7426 -1.09% 43.98 0.21%
08-06-2017 1.7316 -0.63% 44.59 1.39%
15-07-2017 1.7322 0.03% 44.220001 -0.83%
22-08-2017 1.7256 -0.38% 44.419998 0.45%
29-09-2017 1.7351 0.55% 44.560001 0.32%
05-10-2018 1.7321 -0.17% 43.73 -1.86%
12-11-2018 1.7325 0.02% 43.720001 -0.02%
19-12-2018 1.7246 -0.45% 43.82 0.23%
19-01-2018 1.7219 -0.16% 44 0.41%
19-02-2018 1.7191 -0.16% 44.09855093 0.22%
23-03-2018 1.7164 -0.16% 44.11516835 0.04%
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3/17/2016
5/4/2016
6/21/2016
8/8/2016
9/25/2016
11/12/2016
12/30/2016
2/16/2017
4/5/2017
5/23/2017
7/10/2017
8/27/2017
10/14/2017
12/1/2017
1/18/2018
3/7/2018
4/24/2018
6/11/2018
7/29/2018
9/15/2018
11/2/2018
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
GBP to AUD
Wesfarmers
Correlation between exchange rate and its share price over that period
Wesfarmers plc
The above given data and graph revealed that Wesfarmers has high fluctuation in its
share price. However, changes in GBP to AUD are highly negative which reflects the negative
correlation between GBP to AUD and Wesfarmers (Brigham and Ehrhardt, 2013).
Finding for both companies related to foreign currency exposure
BHP Billiton Company is having negative correlation in USD to AUD. The negative
correlation of USD to AUD shows that company needs to use forward contract to book the spot
price for the future transaction. It will save company from the possible transactional and
transaction risks.
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Separate listing on a foreign stock exchange
It is evaluated that due to the international busienss, Wesfarmers Company has to list its
business on the NASDAQ as per the NASDAQ listing rules and regulations. BHP Billiton has
also listed its business on NASDAQ and LSE due to the international listing rules and regulation.
Benefits of listing company on the international foreign stock exchange
The main benefit of listing company on NASDAQ would be increased brand image,
stakeholder trust and easy availability of capital in international foreign market. In addition to
this, this international listing will help company to attract more potential investors who would be
ready to invest their capital in its busienss.
Conclusion
It is observed that listing company on NASDAQ will help company to promote its
busienss on international level. It is evaluated that foreign transaction and translation risk could
be mitigated by company by using the proper foreign risk management program which are given
in this report.
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References
Bloomberg, 2017, ‘BHP Billiton plc ,
https://www.bloomberg.com/news/articles/2017-12-20/glencore-apollo-said-to-bid-for-rio-s-1-5-
billion-coal-assets?
utm_source=yahoo&utm_medium=bd&utm_campaign=headline&cmpId=yhoo.headline&yptr=
yahoo, retrieved on 23rd March 2018.
Bloomberg, 2017, ‘Wesfarmers plc , https://www.bloomberg.com/gadfly/articles/2017-11-20/rio-
tinto-s-buying-again-expect-an-unhappy-ending-for-lithium?
utm_source=yahoo&utm_medium=bd&utm_campaign=headline&cmpId=yhoo.headline&yptr=
yahoo, retrieved on 23rd March 2018.
Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage
Learning.
Yahoo Finance, 2017, ‘BHP Billiton, https://au.finance.yahoo.com/news/could-iron-ore-price-
hit-033537230.html, retrieved on 23rd March, 2018.
Yahoo Finance, 2018, ‘Wesfarmers, https://finance.yahoo.com/news/november-insights-
healthcare-stocks-visioneering-055829291.html, retrieved on 23rd March, 2018.
Yahoo Finance, 2017, ‘Wesfarmers Capital Spending Target, '18 View Solid
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