International Finance - Example

International Finance Name of the student Name of Institution Date of Submission Table of Contents International Finance 1 Name of the student 1 Table of Contents 2 Executive summary 3 1.0 Introduction 3 2.0 Firm structure 4 3.0 Financial markets’ evaluation 5 Reference 15 Executive summary Billabong International Limited (BBL) is an Australia based listed company. The company mostly deals in marketing, distribution, whole and retail of clothing, eye wears. Wetsuits, hardboards for board games and accessories concerned with the season of snow fall, surfing and skating. The company board of directs are eight in numbers. The board is responsible for making all the decisions which are deemed critical and risky for the company. The company has established some standing committees to assist board of governance which give technical advice to the board. South Africa has the highest exchange rate from the analysis above. This leaves the company subsidiary in South Africa is subjected to currency exposure, which can result to currency exchange loss during the business. The long term sources of business like selling of shares in the stock exchange is the cheapest way to raise funds for the business externally even though it diluted the company ownership. 1.0 Introduction Billabong International Limited (BBL) is an Australia based listed company. The company mostly deals in marketing, distribution, whole and retail of clothing, eye wears. Wetsuits, hardboards for board games and accessories concerned with the season of snow fall, surfing and skating. There are several companies who have joint venture with the Billabong International Limited (BBL) to carryout retail business across the world (BBL FR, 2012). The products from the company are being sold through their own stores and by virtue of licensing and by using distinct distribution channels. Across the world, there are over 11,000 stores, which are selling Billabong International Limited (BBL) products. The company major revenues comes from its wholly owned subsidiaries in Australia, New Zealand, South Africa and Europe, other outlets are in North America and Japan (BBL FR, 2012). The company promotes the sale of its apparel and other accessories through promotional agreement through sponsoring top athletes and sport events across the world (BBL FR, 2012). Across the globe, the company is doing business in over 100 countries employing approximately over 6000 employees. The major company brand includes Billabong, Sector 9, Von Zipper, Element, Kustom, Palmers Surf, Honolua Surf Company, Xcel, Nixon, Tigerlily, DaKine and RVCA brands. The company’s founders are surfer and surfboard Gordon Merchant, and it was established in the Southern Gold cost in early 1973. The Company was listed in Stock exchange in the year 2000 through Initial Public offer (IPO), which was publicly appreciated. The company acquired Von Zipper in 2007 and in the same year acquired Element Skateboard brand. Other acquisition took place with Honolua Surf Company, Kustom footwear among others. When the company acquired U.S based subsidiaries Swell.com and Australia’s Surfftitch.com, the company started its business online. The company total asset turnover is AUD 2,079,869 (Newell, Pizer & Raimi, 2013). 2.0 Firm structure The company board of directs are eight in numbers. The board is responsible for making all the decisions which are deemed critical and risky for the company. The company has established some standing committees to assist board of governance which give technical advice to the board. Some of the permanent standing committee formed by the board of directors includes Audit Committee, HR committee and Remuneration Committee and Nomination committee (BBL FR, 2012). The company operates in four major continental blocks and they include; Division Countries Australasia Australia, New Zealand, Japan, South Africa, Singapore, Malaysia, Indonesia, Thailand and South Korea Americas United States, Canada, Brazil, Peru and Chile Europe Western Europe Rest of the world Segment relates to royalty receipts from third-party operations The discussion on this paper will mostly focus on the first divisions’ countries which are 1. Australia, 2. New Zealand 3. Japan, 4. South Africa 3.0 Financial markets’ evaluation In Australia, companies are able to access funds from different sources; these include both internal and external generation of funds. External sources of funds include bank loans, bond market and equity markets. The Australian financial markets expanded rapidly in early 1980, relative to the Australia economy size, financial markets are largely controlled by international standards and are well developed. The Australian foreign exchange markets have grown strongly in terms of trading in both Australian dollar and other currencies. The financial system of Australia consists of borrowing and lending institutions which corporate can use to fund their business. Some of the market participants consist of commercial banks, investment banks, financial companies, building or cooperative societies and credit unions and superannuation (Bateman et al, 2012). Source: yahoo finance.com The graph above explains the trading in the financial markets. Sources of funds Loans: Banks and corporate societies are advancing loans to firms both starting and expansion loans. The rates of finances are very much affording compared with other developing countries. The loan rates are shown below; Loan Name Rates Small business loan 5.65% Overdraft SME 6.85% Business development rate 7.58% Equity Access rate 5.88% Source (ASX,2015) Another sources of funds is bonds: the government gives out bonds which can either be bought by individual investors or companies. Australian stock exchange is another source of funds.listed companies are free to sell out shares to the public. Billabong International Limited (BBL) gave out shares to the public in the year 2000 to raise more capital to fund the company activities (Bateman et al, 2012). Financial markets in New Zealand is the markets that facilitates the buying and selling of long term debt and equity instruments within the country stock exchange. It helped in channeling the wealth for those who wants it and seeking to raise long term finances in the market. In New Zealand debt and equity securities can be issued on both public and private markets. Therefore, Billabong International Limited (BBL) can raise long term finances in the New Zealand markets. The corporate bond in New Zealand has not been very effective raising many questions concerning the development and stability of financial system in the country. Over time, lack of New Zealand government bonds act as a benchmark securities that may have limited the ability of corporate to issue long term debt and contributed to the corporate bond market. Market capitalization in New Zealand the stock market is small if compared to international standards (Newell, Pizer & Raimi, 2013). The banks are credited by offering loans to the corporate, therefore if Billabong International Limited cannot be able to raise money through stock exchange and government bonds, it can raise money through long term loan borrowing. The figure below shows the lending rates for long term borrowing against the total economic growth of the country (Newell, Pizer & Raimi, 2013). Source: yahoo finance.com The reserve bank of New Zealand has kept the interest bench bank as low at 3.5% to 3.25%. This low cost of capital will make the New Zealand economy to grow at a rate of 3.7% making it to be one of the fastest growing economies in developed world. The figure below shows the New Zealand exchange rates against U.S dollar indicating that the currency is strengthening against the dollar. Source: Source: yahoo finance.com From the graph, it is clear that the inflation has been kept moderate and this will help future average inflation near 2%. The exchange rates of the three against the Australian dollar Source: yahoo finance.com In Japan, the funds which are raised by corporations are divided into two. First, internal funds which are generated from the ordinary activities of the business and secondly, external funds that are raised from external borrowing. Loans in Japan are mostly obtained from financial institutions. The Japan money markets are mostly limited in their ability to fulfill meaningful economic function. The money markets in Japan consist of two major segments; they are interbank markets and open markets to which both financial institutions and non financial corporations have access. The interbank markets mostly consist of call market and the bill discount market. Open markets on the other hand are instruments are repos or bonds repurchase agreements, commercial papers, negotiable instruments, financing bills and treasury bills. The Japan market further has dollar market and offshore markets as part of the Japanese foreign exchange markets. For both markets, the money market bookers plays crucial role as the main intermediaries between the borrower and the lenders. They get their license from the ministry of finance and normally they are non-banking organization controlled by the government. There are eight stock exchanges in Japan. However, both operate from Tokyo (Suto, 2002). The corporate sources of funds in Japan includes debt instruments from commercial banks loan and bonds which can either be publicly issued or privately issued. Other in includes financial markets which include financial intermediaries like securitization which is the replacement of the bank loans with the security issued in the money markets. The firms can borrow different types of bonds which include fixed rate, floating rate bond and equity related bond (Suto, 2002). The exchange rates of the Japan are relatively stable in the market. The figure below gives illustration of the exchange rate Source: Source: yahoo finance.com From the graph, the Japanese Yen is relatively stable against New Zealand dollar in 2015, giving a stable borrowing rate. The S. Africa foreign exchange markets have grown strongly in terms of trading in both S. Africa dollar and other currencies. The financial system of Australia consists of borrowing and lending institutions which corporate can use to fund their business. Some of the market participants consist of commercial banks, investment banks, and financial companies. The corporate sources of funds in Japan includes debt instruments from commercial banks loan and bonds which can either be publicly issued or privately issued. Other in includes financial markets which include financial intermediaries like securitization which is the replacement of the bank loans with the security issued in the money markets. The firms can borrow different types of bonds which include fixed rate, floating rate bond and equity related bond. South Africa money markets are diverse (Melicher & Norton, 2013). Open markets on the other hand are instruments are repos or bonds repurchase agreements, commercial papers, negotiable instruments, financing bills and treasury bills. The Japan market further has dollar market and offshore markets as part of the Japanese foreign exchange markets. The figure below shows the lending rates in South Africa Government bonds and public trading are some of the major sources of long term sources funds for business. The South Africa markets are open to foreign equity markets and foreign investors. They can form good source of finances for the business (Melicher & Norton, 2013). Summary and discussion The Company issued a total of 252,547 shares to the public. The company brand is very famous and is of high worth and value as it is increasing being traded in stock exchange. The company has divided its marked into four major segments and the analysis focused in one major segment of trading. From the analysis of the financial markets, the four sources of foreign markets give different interest and borrowing rates. The graph below gives the comparison of the interest rates of the four countries (Melicher & Norton, 2013). Source: Income statement (BBL) From the graph, the cost of borrowing loan in New Zealand is quite cheaper compared to other sources of bank borrowing. It is advisable for the company to borrow loan through its New Zealand Subsidiary for expansion purposes. When it comes to security bonds, the company should focus borrowing through its subsidiaries in Japan. The Japan Stock exchange is more elaborate and offer different security services which can suit long term needs of the firm. The government has invested a lot in the stock exchange compared to the three other markets. The corporate sources of funds in Japan includes debt instruments from commercial banks loan and bonds which can either be publicly issued or privately issued (Melicher & Norton, 2013). Other in includes financial markets which include financial intermediaries like securitization which is the replacement of the bank loans with the security issued in the money markets. This will form a vital source of fund for the business. However, the company management should avoid sourcing company equity from South Africa as the cost of obtaining capital is relatively high as opposed to the three other markets. Conclusion South Africa has the highest exchange rate from the analysis above. This leaves the company subsidiary in South Africa is subjected to currency exposure, which can result to currency exchange loss during the business. The long term sources of business like selling of shares in the stock exchange is the cheapest way to raise funds for the business externally even though it diluted the company ownership. Bank loans should be the least considered option when the management seeks to raise company equity through external funding. Japan Bond market should be given priority when it comes to government bonds and other securities in the money markets. Reference Bateman, H., Eckert, C., Geweke, J., Louviere, J., Thorp, S., & Satchell, S. (2012). Financial Competence and Expectations Formation: Evidence from Australia*. Economic Record, 88(280), 39-63. Billabong International Limited Financial Report 2012 Melicher, R. W., & Norton, E. A. (2013). Introduction to finance: markets, investments, and financial management. Wiley Global Education. Newell, R., Pizer, W., & Raimi, D. (2013). Carbon markets 15 years after kyoto: Lessons learned, new challenges. The Journal of Economic Perspectives, 123-146. Suto, Megumi (2002): Japan's Financial Institutions and the Yen – What are the Obstacles to Internationalization?, paper presented at the Conference on "East Asian Monetary and Financial Cooperation", Hamburg, May 29-31. Read More