7Ac002 Accounting & Finance: Business Assessment Answers

Q7. What are the findings of Holland’s (1992) case study of 14 UK companies that engage in international business?

Q8. What are the methods of analysis used in this case study?

Q9. What are the data sources used in this case study?

Q10. Describe the approach used in this case study to identify the exchange rate risk?

Q11.  What scenarios used in the sensitivity analysis?

Q12. The period that is used for the calculation of the group’s NPV is five years, why?

Q13. The discount rate that used is 13.8 per cent, why?

Q14.  What are the results of this case study?

Q15. What hedging strategies recommended in this case study?

Q16. Can you prepare similar case study for other companies?

Every company that considers the opportunities in the market of UAE, the stability of economy and politics is a dominating factor that has to be taken care of while undergoing expansion in the business.  In this essay, the key focus is one the real examples of FDI in UAE and the analysis of the strategies and risks for managing such risks (McCarthy & Ispriani, 2004).

Boeing has been an incredible example of a company that has been successful in maintaining its business expansion in UAE.  It shares a long standing association with the UAE that already has competitive airline companies as Etihad Airways and Emirates Airlines. Right from the aviation and support services to the satellite systems, Boeing has been working in close associations with the authorities of defense and civil department of the country in order to achieve the aims and objectives of the country (Brooks, 2014).

The other company that has been successful in its business expansion in UAE is Microsoft. Microsoft in UAE has been doing excellent job in providing both onsite and offsite information technology services to the country.

In the case of the business expansion of Boeing in UAE, the company had faced risk regarding the investment in infrastructure which was promoted through the involvement of Foreign Direct Investments in the c country (Buchanan, 2014). The building of the airport infrastructure had many technical as well as feasibility risks in regards to the improvement to the existing faculties available in the country for developing the airport site.  

The strategy adopted by the company in order to resolve the risk was to comply with the FDI norms and built high quality infrastructure for the air transport with the assistance of recent technologies (Damodaran, 2016).  The potential constraints were further eradicated by the enhanced targets as a part of the business strategies. In the case of Microsoft, the company faced risks regarding was regarding the establishing association with the large scale companies in terms of infrastructure of the innovation laboratory that required complying with the regulations of FDI to a great extent (Embrechts, Klüppelberg & Mikosch, 2013). The company incorporated the strategy of online governance along with the forming alliance with the federal government which facilitated the growth of the company in the soil of UAE (Finance & Network, 2013).

Conclusion

Both the companies have been condition the business operation in UAE in effective manners. It was further found that the success of the both the companies lie mostly in the functionality of the business in accordance to the norms of FDI and buildings coordinated alliances with the government of the country. This has helped the business giants to have a dominating position in the country as well as in the international market.

Task-2

• Operating exposure considers the competitive situation of any company and accounts for the impact changes of the exchange rates that could have on the future revenues, cists and profits of the company. Hence is more important cash flow exposure than transaction and operating exposure (Gitman, Juchau & Flanagan, 2015).
• By analyzing and forecasting the transaction exposure along with the future exposure of the competitors of the company and the global competitors, operating exposure can be managed.
• Shapiro states a simplified approach by following a questionnaire that requires information regarding the location in which company is selling, competitors of the company, sensitivity the demand to the price, production locations of the company, locations of the impost of the company, pricing of the inputs and outputs of the company, etc.
• The companies are categorized to have either low or high sensitivities to the alterations in the rate of exchange for either prices or inputs or both. The companies are further classified into local marketers, exporters, and multinational and importers firms (Minsky, 2015).
• Operating exposure needs the combination of the operational and financing hedging strategies as the capability of the financial instruments are very limited.
• The objectives in this case are to anticipate and have an impact on the changes in the rate of exchange on the future cash flow of any company that are unexpected.   
• Holland found that most of those companies had a freedom degree during the revising and formulating the production along with the devising of the financing and, marketing decisions. These companies also use the flexibility for the management of operating exposure.
• The methods of analysis of the case study are primary analysis and survey in which data was collected by conducting research and information was derived from the respondents.
• The data sources used for the case study are the annual report of the company along with the financial statements meant for the financial year. The data were further collected from the webiste of the company and different other sources that are publicly available.
• The approach used is the case study regarding exchange risk identification is et approach devised by Shapiro. This approach is based on the questionnaire.
• The sensitivity analysis is taken into consideration by using the plausible scenarios that is based on the condition in which the company is in. For every scenario, the implications of the appreciation of the Australian dollar against the Euro and the US dofllar are derived.
• The period for calculating NPV is five years as the strategic decision for managing the operating exposure would come into effect within 5 years.
• The discount rate is 13.8 percent as an approximation of the weighted average capital cost of the company which is based on the capital return of the company.
• The results of the case study denote that the appreciation of SAUD will have implications on the revenues of the company.
• The hedging strategies suggested for the case study is to use is the operation technique r hybrid financial technique.
• Yes, similar case study can be prepared for other companies.

References

Addison, P. S. (2017). The illustrated wavelet transform handbook: introductory theory and applications in science, engineering, medicine and finance. CRC press.

Brooks, C. (2014). Introductory econometrics for finance. Cambridge university press.

Buchanan, J. M. (2014). Public finance in democratic process: Fiscal institutions and individual choice. UNC Press Books.

Damodaran, A. (2016). Damodaran on valuation: security analysis for investment and corporate finance (Vol. 324). John Wiley & Sons.

Embrechts, P., Klüppelberg, C., & Mikosch, T. (2013). Modelling extremal events: for insurance and finance (Vol. 33). Springer Science & Business Media.

Finance, E. H., & Network, C. (2013). The eurosystem household finance and consumption survey-results from the first wave (No. 2). ECB statistics paper.

Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. Pearson Higher Education AU.

Minsky, H. P. (2015). Can" it" happen again?: essays on instability and finance. Routledge.

McCarthy, S., & Ispriani, A. (2004). An Operating Economic Exposure-Australian Case Study: Foster’s Group Limited Beer (No. 180). School of Economics and Finance, Queensland University of Technology.