...also an investor, philanthropist, chairman of Soros Fund Management and Open Society Institute. What inspire me most about him are his remarkable history when he did an excellent job on currency speculation in 1992, and also his own way of thinking. According to one of The Telegraph articles, Britain had its fell on European Exchange Rate Mechanism in 1992, and George Soros thought the pound sterling should have been devalued since it had been struggling with the ERM too high at a rate. At that time, he also knew that the Bundesbank would agree to devaluate both pound sterling and the Italian lira since the terrible impact that British high interest rates had on asset prices. George Soros then thought of the way that he could get a profit from the devaluation situation. He borrowed pound sterling in a massive amount, approximately £6.5 billion according to the report. Next, he converted them into a combination of Deutschmarks and French francs. Then on 16 September 1992 or also known as Black Wednesday, his bet paid off. The British Conservative government was forced to withdraw the pound sterling from the European Exchange Rate Mechanism because it surpassed its lower limit. George Soros made over US $1 billion profit by paying back his original borrowings. This is a compelling case for me because even though shorting stocks is common out there, he did his betting incredibly well. I personally...
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...$0.6745. 2. Suppose the direct quote for sterling in New York is 1.1110-5. How much would £500,000 cost in New York? What is the direct quote for dollars in London? Answer. £500,000 cost £500,000 x $1.1115/£= $ 555,570. The direct quote for the dollar in London is just the reciprocal of the direct quote for the British pound in New York or 1/1.1115 - 1/1.1110 = 0.8997-0.9001. 3. Suppose the quote on British pounds is $1.624-31. a. If you converted $10,000 to British pounds and then back to dollars, how many dollars would you end up with? Answer. For $10,000, you would buy pounds at the price of $1.631, giving you £6,131.21 ($10,000/1.631) and resell them at the bid price of $1.624. The latter transaction would yield $9,957.08, resulting in a round-trip cost of $42.92. b. Suppose you could buy pounds at the bid rate and sell them at the ask rate. How many dollars would you have to transact in order to earn $1,000 on a round-trip transaction (buying pounds for dollars and then selling the pounds for dollars)? Answer. For every pound you could buy at the bid and sell at the ask, you would earn the spread of $0.007. To earn $1,000, you would have to transact £142,857.14 ($1,000/$0.0007). At the current bid rate of $1.624, this is equivalent to $232,000 (142,857.14 x $1.624). 4. Calculate the 30-day, 90-day, and 180-day forward discounts for the British pound. Answer. Here are the relevant rates for the pound: Spot: £1 = $1.8220 30-day forward:...
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...Carrefour S.A. In the summer of 2002,with total sales of (euro) EUR53.9 billion from more than 5,200 stores, Carrefour S.A. was Europe’s largest retailer. Over the past four years, Carrefour’s growth had occurred almost entirely outside France and included several large acquisitions. In the past, Carrefour management had generally financed company growth through securities denominated in the currency of business operations. Its investment banks, Morgan Stanley and UBS-Warburg, however, had recently suggested that Carrefour consider borrowing in British pounds sterling in order to take advantage of a borrowing opportunity in that currency.With a debt-financing requirement of EUR750 million, the bond issue would be one of Carrefour’s largest. Now, in August 2002, the investment bankers expected that the 10-years Carrefour bonds would be priced at a coupon rate of 5 ¼ in euros , 5 3/8 in British pounds, 3 5/8 in Swiss francs, or 5 ½ in U.S. dollars. Carrefour In 1963, Carrefour altered the world of retailing with the introduction of the “hyper-market” concept in the small French town of Sainte-Genevieve-des-Bois, southeast of Paris. This format combined a supermarket , drugstore, discount store ,and gas station into one massive, one-stop-shopping megastore. The original store had 2,500 square meters of retail space, 12 checkouts, and 400 parking spaces. The company expanded rapidly in France and beyond, opening its first store outside France (Belgium) in 1969, and outside...
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... and Spain. In 2001, the company’s total profit was EUR2.8 billion. The composition of this are 5 percent is originated from Asia, 2 percent is from Latin America, 26 percent originated in Europe outside France, and the rest is coming from France. The net sales of the company EUR69.5 billion came from Asia (7 percent), Latin America (12 percent), Europe outside France (32 percent) and France (49 percent). This was the first year that the total sales from outside France exceed the total sales coming from France. In 2002, Morgan Stanley and UBS-Warburg suggested that Carrefour should consider borrowing British pounds sterling in order to take advantage of a borrowing opportunity in that currency. Carrefour would issue EUR750 million bonds. The investment bankers expected that the 10 year bonds would be priced at a coupon rate of 5.25 in EUR, 5.375 in British pounds, 3.625 in Swiss francs, or 5.5 in U.S. dollars. II. STATEMENT OF THE PROBLEM Carrefour have decided to issue a 10 year bond for debt-financing of EUR750 million. But the company needs to choose on which currency they would borrow. The...
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...Running head: International Financial Markets International Financial Markets Unit 1 Individual Project Michelle McCollough June 8, 2007 American InterContinental University Abstract The below paper will discuss starting an operation in a foreign country. I will compare and contrast the United Kingdom and Hong Kong. I will also explain which country would be best to begin a business in. International Financial Markets Introduction Acme is planning on having a greenfield production facility overseas. The two foreign countries that I have decided to compare for starting business in is the United Kingdom, which is part of the European Union and Hong Kong. Hong Kong is not part of the European Union. I will first analyze the UK and then Hong Kong. Analysis of the United Kingdom (UK): The United Kingdom of Great Britain and Northern Irelane is a state that consists of the nations of England, Scotland, Wales, and Northern Ireland. This is also under the UK sovereignty and is not apart of the UK itself, however are the “Crown dependencies of the Channel Island and the Isle of Man.” The said dependencies seek their own policies over taxes, employment, education, and health. They are subjected to UK control on matters such as defense (Doing Business in the UK, 2005). The UK has an island of 242,500km2. The UK’s population in 2002 was 59.2 million and in 2006 the population was 60.6 million. The languages...
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...Executive Summary: Jaguar PLC, 1984 This case explores the operating exposure of Jaguar PLC in 1984, just as the government is about to relinquish control and take the company public via an IPO. The primary concern of the CFO is that Jaguar sells over 50% of its cars in the US, while its production costs and factories are U.K.-based. This currency mismatch creates operating exposure for the firm that needs to be hedged. While the current trend in the USD has been higher, the markets are expecting a pullback in the currency. With labor accounting for a significant portion of the cost base for luxury car industry, it is unlikely that the expense will decline in the near future. Again this creates a potential liability in the matching pf the cash inflows and outflows. Given Jaguar's primary competitors have operating expenses in DEM, the CFO should also be concerned with the competitive advantages that are associated with favorable exchanges rate when compared to the competition. Thus, there also exists the issue of the GBP/DEM exchange rate. The overarching themes and underlying issues that must be addressed in order to address Jaguar's currency exposure are: •Valuation of the risks associated with firms with multiple currency exposure •Risks associated with revenue streams and expenses in different currencies •Valuation and assessment of highly competitive niche luxury car markets •Supply chain effectiveness and labor trends in the automotive industry •Strategic positioning...
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...Global Financing and Exchange Rate Mechanisms of Hard and Soft Currencies Renita McBath MGT/448 University of Phoenix December 1, 2011 Professor David Grier Global Financing and Exchange Rate Mechanisms of Hard and Soft Currencies Trading, bartering, buying, and selling are known as the act doing business. The action of doing business has been a way of life for human beings for Centuries. At some point in our history the difficulty of doing business equally became a challenge. For instance, one person would like to trade a jar of jelly to another person that owns cows. The trade is off balance because of the value of each item. The difficulty arose when trying to access a credit. At this point, currency was born. In the beginning, currency was established by villagers in the form of stones, paper, linen, and other countable items. Nowadays humans have evolved currency into unique metal and paper items that have unique values. Currently these uniquely valuable currencies are referred to as hard and soft. Further research will reveal an analysis of the use of the currencies in global financing operations as well as describing the importance of managing risks that may arise. Hard Currency Hard currency is a status associated with the material, paper, and coins that are circulated within a country and globally in an effort to buy and sell goods. Currently, hard currency is the most traded currency. Countries...
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...British Pound (GBP) Executive Summary A nation’s currency can be affected in many ways including economic, political, social and cultural events related to particular country. The exchange rate will move positively or negatively dependent on how adversely each of these factors cause change to the currency’s spot rate. Throughout our evaluation of the Great British Pound, we were able to track and measure how each of the factors caused change in the currency’s value. Over the past four months we have seen a significant decrease in the value of the British Pound. As will be explained in this paper, many different factors caused downward pressure to be placed on the currency. Expected changes in the political structure of Britain causes some to feel unwavering about the future, especially when the current monetary and fiscal policies are not resulting in a positive outlook for the economy and especially the vale of the currency. Supply and demand for the currency will change as the currency appreciates and depreciates due to the country’s varying stages of surplus’ and deficits. These and other economic forces will be developed throughout the paper to analyze and interpret how the British Pound has changed over the first couple of months in 2013. Historical The pound sterling, commonly known as the pound (GBP), is the official currency of the United Kingdom. It is the oldest currency still in use as it was created in the Anglo-Saxon period where it was equivalent...
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...BUSINESS DETAILS This business proposal is confidential and I request that it be treated as such. I must solicit your confidentiality and assure you that I am contacting you in good faith and this proposal will be of mutual benefit. I am Richard Gerrald, a solicitor at law. I am the personal attorney/sole executor to a client of mine, who died along with his family in a plane crash on the 14th of August 2005. My late client a formal Sub-Comptroller working with Chevron Texaco Oil here in the United Kingdom and had Left behind a deposit of Sixteen Million British Pounds Sterling only (£16,000,000.00) with a bank. After the death of my client, the finance company contacted me, as his attorney to provide his next of kin who should inherit his fortune this according to them is their policy in sure circumstances. Since the death of my client, I have written several letters to the embassy with intent to locate any of his extended relatives whom shall be claimants/beneficiaries of his abandoned personal estate and all such efforts have been to no avail. I had to inform the finance company about my fruitless effort in locating my late client's close relative or his next of kin. The board of directors of the finance company now adopted a resolution and I was mandated to provide his next of kin for the payment of this money or forfeit the money as an abandoned fund. The company had planned to invoke the abandoned property decree of 1996 to confiscate the funds after the expiration...
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...The Crisis Scenario around the British Pound in 1992 By the time the United Kingdom joined the European Exchange Rate Mechanism (ERM) in October 1990, it was already living a severe economic recession. A drop in industrial productivity and high levels of unemployment struck the nation after the economic growth of the 1980’s (Table 1 and 2). Table 1 – Unemployment Rate in UK in % Source: Office for National Statistics (UK) Table 2 – Industrial Production in UK: Percentage change year-over-year Source: www.tradingeconomics.com During the prosper economic period of the 1980’s there was strong private investment on household, meaning that the mortgage credit rose significantly. In the beginning of the 1990’s the level of private debt was unbearable (Graph 1). Graph 1 - Debt to income ratio Source: Bank of England High rates of unemployment, high private debt and lack of macroeconomic surveillance tools have been pointed out as the main reasons for the economic recession of the early 1990’s. A sharper control over macroeconomic policies as well as an effective control of inflation and the defense of competitiveness of the sterling within Europe was some of the goals the British government aimed at by joining the ERM. A central exchange rate for each participating currency was established against the ECU, the artificial unit of account that set the pillars for the Euro currency. In practice, the participating currencies where actually pegged to the German...
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...British Monetary System Name BUS 450 International Finance Teacher Date Foreign monetary systems are often not unlike our own. Different countries use policies that they decide upon and create institutions that help their government supply money to the economy. Sometimes these money systems are based on commodities like gold or silver, in which paper notes may be presented and then converted for the element on demand. Another money system is a fiat system where the government or a central bank defines the value of the money. No matter what system another country is on, there are influences and obstacles that must be comprehended in order to master a foreign monetary system. The British system is one that is much like ours, yet it has existed a lot longer, and is just as complex. The core focus of this investigation is to learn the history of Britain’s monetary system, scrutinize its major components and significant influences, learn about its financial organizations, and reveal incidents that helped form its current system. The history of Britain’s monetary system stretches back through the centuries. In the 1640’s many people wanted to keep their gold safe, so they entrusted their wealth to goldsmiths. In exchange for the gold, people would receive “promissory notes” which entitled the bearer to the full amount in gold. This was far easier to carry around than heavy bags of coins, and they became very popular and were soon used as currency. When the goldsmiths...
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...McDonald's British Pound Exposure McDonald’s Corporation’s British Pound Exposure 1. How does the cross currency swap effectively hedge the three primary exposures McDonalds has relative to its British subsidiary. Currently, the British subsidiary of McDonald's is assuming a fixed interest rate denominated in the pound. Through cross currency swapping the subsidiary of McDonald's is able to break away from its fixed interest rate and can adopt the floating interest rate from its US parent company; they are participating in the swap of floating for fixed. In doing so they assume that with that there will be a drop in the floating interest rate reducing their fluctuating payments. This method also comes with a large risk. The British subsidiary also takes on the added risk that the interest rate may increase with the float. Using this swap McDonald's will be paying out Pounds Sterling and slowly reducing their holdings of the foreign currency. With each payment they are reducing the risk associated with the Pound and their investment in a foreign country. The repatriation of royalties are being hedged to avoid future, more expensive payments. Swapping fixed for fixed. Possible solution is the pound pays off more of the principal balance? Above needs revamping. 2. How does the cross-currency swap hedge the long-term equity exposure in the foreign subsidiary? McDonald's employs a swap hedging model that is seven years in length and allows...
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...appreciated, depreciated 2. depreciated, appreciated 3. appreciated, appreciated 4. depreciated, depreciated 4. A foreign currency is said to have appreciated against the dollar when: 1. the dollar price of the currency has increased 2. the foreign currency price of the dollar has increased 3. the exchange rate of both currencies with respect to the euro has increased 4. the exchange rate for both currencies with respect to a third currency has decreased 5. If you have a commitment to pay a friend in Britain 1,000 pounds in 30 days, and you are holding US dollars, you could remove the risk of loss due to the appreciation of the pound by: 1. Buying dollars in the 30-day forward market 2. Selling dollars in the 30-day forward market 3. Buying pounds in the 30-day forward market 4. Selling pounds in the 30-day forward market 6. Suppose the exchange rate of the British pound is $1.75 per pound while the exchange value of the Swiss franc is $0.667 cents per franc. The...
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... Dorchester has been struggling with supplying the United States with their demand of 390,000 pounds (with 5% annual growth rate) of candies. Due to limited production capacity, only 65,000 pounds per year of candies are supplied throughout that region. The company deems that an additional manufacturing facility situated in the U.S would easily supply Dorchester’s product throughout the entire U.S. market and Canada. The current spot exchange rate is US$1.50/GBP, while the U.S is predicting a 3% inflation rate and 5% for the U.K. Dorchester’s expansion possibility to the United States will cost them US$7,000,000 to build a factory. This would allow Dorchester to fulfill all 390,000 pounds expected demand and its profit per pound would increase from US$4.305 to US4.400. The factory has planned to operate for seven years, at that time, the United States Internal Revenue Service considers the factory fully depreciated with straight-line depreciation, but Dorchester’s management suggests that the remaining equipment can be sold for US$2,000,000. Should Dorchester choose to invest in the new U.S factory, they plan to pay it off with a combination of equity capital and debt. The company would borrow at most £2,000,000 (US$3,000,000): the Unites States local community would be able to provide US$1,500,000 debt at 7.75% coupon rate annually; or they can issue a bond for Pounds Sterling at 10.75% annually coupon rate, or 9.5% Eurodollar bond for USD at 9.5% annually coupon rate....
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...CONTENTS Page(s) 1. Introduction 2. Company Background 3. Swot Analysis 4. Strengths 5. Weaknesses 6. Opportunities 7. Threats 8. Recommendation/ Conclusion APA Referencing 1 1 1–2 3-4 5-6 7 8-9 10 10 - 12 1.0 Introduction The purpose of this report is to identify the factors found in the internal and external environments that could affect Holland and Barrett, a franchise brought to Singapore by the Jay Gee Melwani Group. 2.0 Company Background Holland & Barrett is a leading European brand, selling vitamins, minerals and herbal supplements (Holland and Barrett, 2013). The Melwani Group is a family run business, which represents and markets leading brands like Aigner, Aldo, Levis, Celio, Adidas Kids and many distinctive household brands (Jay Gee Melwani Group, 2013). The company brought Holland & Barrett to the Singapore retail scene and to date, they have 22 outlets (Holland and Barrett, 2013). 3.0 SWOT Analysis We will be adopting the SWOT model of analysis, looking at the strengths, weaknesses, opportunities and threats this business franchise maybe facing, so as to evaluate what are the possible internal and external environments that could affect the business. SWOT is widely used by companies when it comes to strategies planning (Coman, Ronen, 2009, p.1). It is a tool used by management to identify the strengths and weaknesses of a company within the internal environment, as well as opportunities and threats in the external environment (Kotler, P., Keller...
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