Introduction
The advent of globalisation has been rapidly increasing the pace of competition among corporations to achieve a competitive position with long-term growth and sustainability. In this context, internationalisation plays a pivotal role for the firms to establish long-term sustainability with strong market share and profitability. However, the expansion of business units in other global markets includes numbers of potential risks and challenges that may result in negative impact on the organisation to survive long-term (Stulz, 2004). With a, due emphasis upon the current business arena, the discussion of this report tends to develop a memorandum outlining the key derivatives that may help London Yellow Bricks to deal with various risks and challenges effectively. For students who are struggling with complex business concepts and seeking professional assistance business dissertation help could provide the best support in navigating through intricate academic needs and achieving academic success.
2.0 Identification and evaluating of Common Risk Factors in Internationalisation of Business
Based on the financial figure represented in the case, it has been observed that the financial performance of London Yellow Bricks has been gaining a growth and could earn £ 5 million during the previous fiscal year as its annual turnover. Concerning the achievement of significant profit, the company was anticipated to increase its growth in operations with 5% in the UK. Correspondingly, the net profit of the company is also observed to be only 5%, which significantly ascertained that the company has been performing with positive growth in the financial years. This is further witnessed that the business performance of London Yellow Bricks is undergoing stable growth in its domestic market.
However, the unidentified risks resulted from the market derivatives and emerging challenges due to the changing competitive trend in the market would be substantially imposing major threats for the company. In this context, continuous fluctuation in inflation rate and uncertain changes in exchange rates likely to impose major risks for the company to expand business units in different regions successfully. The continuous fall in the exchange rate with the unabated fluctuation of domestic currency is often observed to have a major impact on London Yellow Bricks to ascertain possible growth in international markets. Indeed, such type of possible outcomes may also impose major liabilities across different business dimensions of the company in the form of lower revenue growth, increasing operating cost, reducing competitiveness as well as less shareholder value in the operating segments.
Despite the anticipated outcomes due to the uncertain changes in inflation ad exchange rates, the strong denomination of Sterling may increase positive revenue growth for London Yellow Bricks. In such situation, the strong growth of the currency may endow the company with possible benefits, especially in purchasing power and competitive pricing of goods. However, rapid fall in demand of products may increase the major threat for London Yellow Bricks as the changes in currency rate may substantially undermine the annual spending rate of the customers which would critically lower the demand for its range of goods in the market. In the context of the international market, the impact would further extent to increase the depreciation on export activities of the company. Moreover, the risk of continuous downfall in the exchange rate may also impose London Yellow Bricks to fetch lower competitiveness in its export activities. Therefore, the risk can result in the company to experience possible threats from transactional economic factors. Transactional risks are a type of challenges that companies tend to face with their cash flows, which mainly enable companies’ to effectively deal with impacts from the exchange rate related risks that are derived from transactional account exposure associated with account receivable, account payables or it may emerge from dividend repatriations. In another context, any types of changes in exchange rates that may result to impact on cash flows in foreign currency, the situation may have dire impact on the firms while operating globally.
From another perspective, changes in the exchange rate are also identified to bring major risks relating to translation derivatives that may increase the major threat for the firms when dealing business operations globally. This is because the risks associated with translational derivatives are often derived from the balance sheets. This type of risks emerges in the context of situations when foreign assets and liabilities held by any business entity that is required to be recorded by the current home-based currency denomination.
3. Evaluation of the Key Derivatives and Appropriate Management Processes to Deal with the Risks
With due regard to the discussion above, few major key practices can be duly accepted that can enable London Yellow Bricks to effectively deal with the risk factors while internationally operating its business subsidiaries. Therefore, based on the degree of risks derived from transactional and translation risk factors, the changing exchange rates with a major devaluation of currency denomination can be a major consideration for the company while dealing business activities across different global regions. Therefore, few of the major practices that can enable London Yellow Bricks to deal with such type of risks have been detailed below:
3.1 Forwards Exchange Rate Contracts
Forward exchange rate contract is one of the most effective processes for the organisation to deal with impacts that are often derived from transaction exposures. The concept of forwarding exchange rate contract can be defined as an enforceable agreement to buy or sell a certain quantity of foreign assets with an agreed rate of return for a specific future period. With due consideration to the principles of the contract, it can provide major support to London Bricks to minimise the possible risk exposures from the transaction economic derivatives (Ahamed & Mydin, 2002). For instance, the forward contract of London Yellow Bricks to get the value of its actual return in RMB if the company exports its range of operations to China. It can help the company to estimate a possible sum of return after six months of its investment in Chinese markets. For example, if London Yellow Bricks the company would get a payment of 1 million RMB, it would facilitate the company to get the value of £ 1 million with the denomination currency value of Chinese RMB for a particular period.
Assumption
Based on the principles of forwarding exchange rate contract, if the current exchange rate of RMB as 0.8 per sterling, the actual value as of the current exchange rate would be £ 800000. Correspondingly, if the exchange rate becomes 0.7/ £ after a period of six months, the return that would receive by London Yellow Bricks would be £700000 which is less £100000 by the current value. From another perspective, if the exchange rate depreciates to £, selling of RMB would be a major decision for London Yellow Bricks to hedge the possible impact of the changing exchange rate on the currency denominations. Hence, the process of selling RMB would require London Yellow Bricks to enter an agreement with the rate of RMB 0.8/£ for the period of six months. Therefore, the process would substantially enable London Yellow Bricks to minimise the risk exposure from uncertain changes in exchange rates while doing business globally (Dohring, 2008).
Option Contracts
Option contracts are further witnessed to be an effective risk mitigation strategy for organisations to deal with various exchange rate risks. The contractual process permits business entities to sell or buy a certain number of foreign assets with a given rate of currency exchange on or before the agreed date of the contract. However, the contractual processes in options contracts eventually include or may impose a major obligation on the parties involved in the agreement (Brown, 2001).
Assumption:
To mitigate possible exchange rate risks in the emerging Indian markets, the expectation of receiving INR 1 million within the first half of the year 2017 would be a feasible anticipation of return for the company. Buying options in this context will be a feasible strategy for London Yellow Bricks if the current value of INR reaches 72 percent by the value of sterling in the context of its range of export. Also, setting a rate of 75 per cent on expiry of the contract before the agreed period would further enable London Yellow Bricks to reduce possible amount of risks while dealing business activities in the Indian market. In the case of the lower exchange rate (below 75 percent), the company will be able to redeem the option contract with buying INR/£ at the actual exchange rate of sterling or rupee. The process would, therefore, help London Yellow Bricks to minimise impacts on its profit margin with 75 cents.
4. Critical analysis of Warren Buffet words and their applicability to this case
According to the Berkshire Hathaway shareholders report 2002, the statements conferred by Warren Buffet has provided valuable insights that can stimulate appropriate financing decisions and risk mitigation processes of the firms, especially while operating in other economies. About the statement of Buffet in the report, the prominent leader has conferred financial derivatives as a strong set of weapons that can potentially increase firms' capability to sustain in difficult markets with diverse forces of economic indicators. The prominent leader has stated that "I view derivatives as time bombs, both for the parties that deal in them and the economic system… In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."
According to the statement conferred by Buffet, a set of strong factors and limitations have been critically identified by him in derivative contracts. He has confirmed that the derivative contracts and different other relevant factors are not based on any periodical terms rather their varied duration that can be extended up to 20 or more years for the entities. Moreover, Buffet has also stated that the derivatives are recognised to have a strong connection with different other variables. However, the derivatives in the financial markets are also overstated as per the argument conferred by Buffet in his statement. Correspondingly, he has also claimed that as the derivatives are identified based on their appropriate estimations, an inaccuracy relating to such estimations often remains unexposed irrespective of any uncertain changes in the financial markets (Papaioannou, 2006).
Buffet has further contended that entities involved in financial derivatives are more likely to enjoy significant incentives to engage in a particular set of deceptive parties. Therefore, he noted that the parties involved in derivative trades are incentivised either wholly or partly by entire learning. The entire earnings of possible incentives to be acquired by the parties are calculated based on mark-to-mark accounting process (Buffett, 2002). However, Buffet has strongly claimed that real markets never exist in such type of situations where parties involved in derivative contracts. Hence, based on this statement, Buffet has critically slammed that trading of financial derivatives can largely incentivize CEOs through uniting the valuable group of shareholders and conferring that the earning of the company is deceptive (Buffett, 2002).
With due regard to the various opinions of the scholars and experts, it has been critically identified that financial derivatives are often used as weapons to effectively minimise risks derived from changing exchange rates (Sivakumar & Sarkar, 2007). However, Buffet, in this regard has critically slammed that it would be impractical while the financial derivatives are not considered as a weapon of mass destruction. Therefore, the scholars and analysts have critically countered the statement of Buffet by stating that the financial derivatives are also used for addressing challenges, despite its existing drawbacks. The positive implication that can be gained from the derivatives includes their contributions on minimising impacts of changing market trends or uncertain volatilities of the financial indicators on the financial performance of the organisations.
Conclusion
The primary aim of the memorandum was to calculate the possible risks from the financial derivatives on London Yellow Bricks regarding its expansion different emerging economies. In this context, the memo has included potential risk factors by characterising financial markets into transaction risks, exchange rate risk and translation risks that are a crucial aspect to be considered by London Yellow Bricks while entering in other developing economies. A critical assessment of possible risk mitigation methods has also suggested enabling the company to deal with uncertain risks from the derivatives. And finally, the memorandum measures the amount of risk exposure from the financial derivatives by the statements of Warren Buffet regarding his views on impacts of financial derivatives on firms. In this regard, based on the discussion of the statements of Buffet, it is quite evident that the risk exposures from different financial derivatives may impose significant challenges for London Yellow Bricks. Hence, a collective use of forwarding contracts on exchanges rates as well as options contracts can be a successful tool for the company to minimise the possible impacts from the derivatives.
References
Ahamed, K. & Mydin, M. (2002). Hedging Foreign Exchange Risk with Forwards, Futures, Options and the Gold Dinar: A Comparison Note. [Online] Available At: https://www.lariba.com/site/pdf/Malaysia%20-%20GOLD%20-%20Hedging%20With%20Dinar.pdf [Accessed March 06, 2017].
Bogićević, J. et al. (2016). Foreign Exchange Transaction Exposure of Enterprises in Serbia.Economic Annals, LXI(209), 161-177.
Brown, G.W. (2001). Managing Foreign Exchange Risk with Derivatives.Journal of Financial Economics 60, 401-448.
Buffett, W. (2002). Berkshire’s Corporate Performance vs. the S&P 500. Berkshire Hathaway Inc. [Online] Available At: http://www.berkshirehathaway.com/letters/2002pdf.pdf [Accessed March 06, 2017].
Dohring, B. (2008). Hedging and Invoicing strategies to reduce exchange rate exposure. A Euro-area Perspective. European Commission.
Papaioannou, M. (2006). Exchange Rate Risk Measurement and Management: Issues and Approaches for Firms. IMF Working Paper, (06/255), 3-18.
Sivakumar, A. Sarkar, R. (2007). Corporate Hedging for Foreign Exchange Risk in India. [Online] Available from http://www.iitk.ac.in/infocell/announce/convention/papers/Marketing,%20Finance%20and%20International%20Strategy-07-Anuradha%20Sivakumar%20Runa%20Sarkar.pdf [Accessed March 06, 2017].
Stulz, R. M. (2004). Should We Fear Derivatives?Journal of Economic Perspective 18(3), 173–192.
This study has successfully developed the state-of-arts methods for assessing an exposure to combustion-related air pollutant within indoor and outdoor settings. From the experiments and analyses performed, the objectives of this study were achieved as follows:
The novel methods employed to perform field evaluation of combustion-related air pollutants were established through literature (Jantunnen et al. 2002; Koehler and Peters, 2015) to provide strategies for exposure assessment in different environmental settings. Furthermore, the central problems addressed in this thesis are the identification of key pollutants from combustion-related sources and the imperative needs to quantify personal exposure using dedicated and reliable measurement techniques. The main key findings from this study divided into the development of novel methods and extended to evaluate combustion-related air pollutants atin indoor and outdoor settings are shown below.
This research presented a novel approach, which anticipate to provideproviding insights in personal exposure to combustion related air pollutant, therefore wouldwill opens the doors for exploring advanced methodologies between researchers, participants and other stakeholders. The main contributions of this study are:
The basis of the novel development approach in this study is the flexibility and effectiveness of sample collection and analysis systems for combustion-related air pollutants. By integrating novel exposure assessment along with measures of combustion related air pollutants concentrations and the use of portable real-time sensors and GPS receiver has allowed to approximate the exposure data and identify the spatial and temporal variability in the urban environment. Furthermore, the study at two vertical heights using moving and stationary platforms has been demonstrated to be superior, in terms of reliability and robustness to state-of-arts air monitoring alternatives in estimating the pollutant exposure to adult and children.
In chapter 3, a simple and low-cost method to estimate BC concentrations has introduced using reflectometer and an office scanner. From the results reported in Chapter 4 & 6, these approaches can be used to approximate BC values estimate exposures to combustion-related air pollutants in studies of the effects of air pollution on human health.
The short time resolution of the types of portable instruments used in this study can help to identify the occupational (office worker and fracking site operator) and environmental exposure to combustion-related air pollutants. This research also characterise the combustion related air pollutant concentrations to the vulnerable group, the children who are prone to exposure ofe to the ambient air pollution in the urban environment.
Most of the population-base studies evaluating health effects from UNG development (McKenzie et al. 2012; McKenzie et al. 2014; Rabinowitz et al. 2015) have highlighted the need to provide exposure monitoring close proximity to the sources. The results presented in Chapter 7, suggest a promising field evaluation technique to assess combustion-related air pollutants of BC and NO₂ using dedicated high time resolutions of portable monitors in the real world environment during the operation of fracking diesel machinery. Although the measurement was undertaken in a short period due to limited access to the facility, this preliminary observation is beneficial for extended health risk assessment before, during, or after the UNG activities.
The indoor study in chapter 5 has addressed the variables and sources of PM, BC and NO₂ with additional measurements of CO₂. This information may reflect the policy implication for the office building particularly in the existing building at Graham Hills Building, University of Strathclyde has to improve comfort and well-being of their office staff. Additionally, the urban outdoor study conducted in Glasgow city centre may characterise patterns of personal exposure during walking in the city centre districts. This will allow individual to make choice in order toto reduce their exposure to combustion-related air pollutants from the choice of their walking route. As mentioned in section 2.5, to date, there is no regulation for BC,BC; therefore the findings in this study will be beneficial for regulatory standard and threshold levels of BC related to its potential health effects.
This study suffers certainfrom some limitations, which have to be pointed out. They are as follows:
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