Australian dollar
Question 2
a) A fall in the value of the Australian dollar (AUD) against the U.S. dollar (USD) benefit Billabong in two folds, strengthened price competitiveness and translation advantage. Firstly, the Americas segment accounts for about 50% of Billabong’s sales revenue in 2008 and 2009. (Appx.1) In case of depreciation of AUD against USD, the price of imported surfwear to the U.S. in terms of USD will decrease. The US importers demand more for Billabong’s products. The sales increases from the strengthened price competitiveness. Secondly, when Billabong received payment from the importers, it will translated back into AUD for use in Australia. As AUD depreciate, the receipt in USD can be translated into more AUD than before, bringing increase in sales revenues.
The effect of 35.6% fall in value of AUD in the second half 2008 was reflected in the interim report ended December 2009, with sales revenues in the Americas increased by 33.9% (to 385 million). (Appx.2)
b) One can predict the future exchange rate by using forward exchange rate. In times of financial crisis, the forward exchange rate is not a good predictor because the market is inefficient.
In an inefficient market, Fundamental approach can be used for forecasting, based on economic theories and analysis of variables. But it is not effective in predicting the short-term fluctuations in exchange rates, nor is it comprehensive as there would always be variables that would not be expected. Another approach could be using technical analysis to determine the trend of a currency by analyzing historical data. This approach is suspected to be a crystal ball because there is no theoretical rationale.
The financial crisis have caused unanticipated fluctuations in the value of Australian dollar. Press forecast for the exchange rates forecasts of 2009 in the late 2008 were towards continual depreciation. It was 67.83 US cents on Christmas Eve 2008. The Australian Associated Press (AAP) predicted it would be
a) A fall in the value of the Australian dollar (AUD) against the U.S. dollar (USD) benefit Billabong in two folds, strengthened price competitiveness and translation advantage. Firstly, the Americas segment accounts for about 50% of Billabong’s sales revenue in 2008 and 2009. (Appx.1) In case of depreciation of AUD against USD, the price of imported surfwear to the U.S. in terms of USD will decrease. The US importers demand more for Billabong’s products. The sales increases from the strengthened price competitiveness. Secondly, when Billabong received payment from the importers, it will translated back into AUD for use in Australia. As AUD depreciate, the receipt in USD can be translated into more AUD than before, bringing increase in sales revenues.
The effect of 35.6% fall in value of AUD in the second half 2008 was reflected in the interim report ended December 2009, with sales revenues in the Americas increased by 33.9% (to 385 million). (Appx.2)
b) One can predict the future exchange rate by using forward exchange rate. In times of financial crisis, the forward exchange rate is not a good predictor because the market is inefficient.
In an inefficient market, Fundamental approach can be used for forecasting, based on economic theories and analysis of variables. But it is not effective in predicting the short-term fluctuations in exchange rates, nor is it comprehensive as there would always be variables that would not be expected. Another approach could be using technical analysis to determine the trend of a currency by analyzing historical data. This approach is suspected to be a crystal ball because there is no theoretical rationale.
The financial crisis have caused unanticipated fluctuations in the value of Australian dollar. Press forecast for the exchange rates forecasts of 2009 in the late 2008 were towards continual depreciation. It was 67.83 US cents on Christmas Eve 2008. The Australian Associated Press (AAP) predicted it would be