Consider the following three currency pairs: AUD/CNY, AUD/USD and EUR/AUD, where AUD stands for the Australian dollar, CNY is the Chinese currency Yuan, EUR refers to euro, and USD for the US dollar.
Assignment Task
What You Need to Do: Answer all the questions that follow
Consider the following three currency pairs: AUD/CNY, AUD/USD and EUR/AUD, where AUD stands for the Australian dollar, CNY is the Chinese currency Yuan, EUR refers to euro, and USD for the US dollar.
- Conduct an analysis of the recent exchange value dynamics of these three currency pairs (since January 2019) given the recent global events and the recent period of high stress in world economies and markets (cite the precise factors and events), and assess the impacts of the current COVID-19 pandemic and the Russia-Ukraine War on the movements of the above currency pairs. You may refer to your own currency trading experience if you Maximum word limit:
- Are CNY, EUR and USD performing better or worse than AUD in terms of current global market conditions and future economic prospects? Based on your analysis, construct a capital investment plan including a hedging strategy for Australian multinational corporations (MNCs) operating into these countries, i.e. China, the eurozone and the United States.
- Advanced Power Pty Ltd has been manufacturing Australia’s largest range of portable power generators under the Advanced Power brand for over 20 It exports portable and commercial generators and control systems to Italy but the recent strong AUD against the euro hurts their sales in Italy. In the Italian market, Advanced Power faces competition from the Germany and French portable generators makers, whose operating currencies are the euro. What kind of measures would you recommend so that Advanced Power Pty Ltd can maintain its overall market share, and in particular, its market share in Italy.
- CSL Limited is an Australian multinational specialty biotechnology company that researches, develops, manufactures, and markets products to treat and prevent serious human medical conditions. CSL has just received an order from a large wholesaler in Germany for AUD3,200,000 of its products on April 26, 2024, conditional upon delivery being made in three months’ time and the order invoiced in euros.
CSL management is concerned with the potential foreign exchange rate risk associated with this business, and asks you to conduct an analysis and make suggestions about hedging the exchange rate exposure. Maximum word limit for your report to CSL is 500 Words (PGCLO2.3 & 2.4).
( The following information is provided: on April 26, 2024, the spot rate for one AUD is respectively EUR 0.6743, CNY4.7418, and USD0.7095, while the three-month forward rates for AUD and EUR versus USD are USD0.69737/AUD1.00 and USD1.06246/EUR1.00, respectively. Currently, strike price for a 3-month put option is AUD1.5105/EUR1.00 at a premium cost of AUD 0.0358 per EUR, and the strike price for a 3-month call option is AUD1.5195/EUR1.00 at a premium cost of AUD 0.042 per EUR. )