so for this assignment i just want you guys to do the introduction and objectives.The company selected is Amcor Ltd.you can see example of introduction in one file i have attached.
Example Assignment_Dulux (1) Dulux Group Managing foreign exchange risk and equity investment Commented [A1]: Overall, there are some grammatical errors, and lack of theoretical supports as well as explanations on the arguments. Method and equations can be presented to help readers to understand where the computed numbers came from. In addition, some improvements can be made in the presentation of the report (e.g. using a consistent number of decimal points in the table and etc.,) 1. Introduction A recent currency war among governments; aiming to gain a trade advantage over other countries by devaluating ts own currency, has increased the volatility of the currency market. Under this uncertain currency market environment, both multinational and purely domestic companies are facing a difficult balancing act. The behaviour of foreign exchange rates not only directly affects the balance sheet or income statement but also indirectly alters competitiveness of companies. We understand that Dulux Group, by manufacturing and selling housing interior/exterior as well as construction products to various countries including Australia, New Zealand, Papua New Guinea, China and South-East Asian countries, is exposed to risks associated with foreign currency fluctuations. Although the company has been actively engaging with reducing currency risks by diversifying its employment and by entering financial contracts, a further measure can be employed to mitigate such a type of risk while reducing the implementation costs. Obtaining clearer understanding about the future currency movement allows the company to take a better position in negotiating with counter parties including financial institutions who provide financial hedging products. As a preliminary report, we select three currencies that we believe the company is exposed against and conduct basic analyses on how would those currencies behave in a foreseeable future and on which hedging policy would best suit the company. Furthermore, we acknowledge that the company is seeking opportunities of equity investment. In summary, we have identified three foreign currencies, namely, USD, PGK, and CNY that the company is potentially exposed against. Those currencies are selected based on the information provided by the annual report of the company; however, our analyses indicate potential divergence between the perception of the shareholders and the information provided by the company in relation to the currencies that may impact the company’s business performance. In addition, based on the assumption that the selected currencies in fact affect the business environment of the company, our study demonstrates that the money market hedging is the ideal hedging method for Dulux Group. Commented [A2]: This paragraph does not provide clear picture about whether the company’s overseas segments simply are for production or are gaining a large amount of revenues. 2. Currency risk In this section, we identify foreign currencies that potentially affect the earnings of Dulux Group. At this moment, we do not have access to the breakdown of company’s reginal balance sheet as we have not yet signed a formal confidential agreement. For this reason, our analyses use the equity value of the company represented by the exchange traded stock price. For the currencies used for the analyses we have selected the U.S., dollar (USD), Papua New Guinean Kina (PGK) and Chinese Yuan Renminbi (RMB). Those currencies are selected by examining the company’s annual report. As illustrated in Figure 1, these currencies have the largest impact on its equity and annual profit. The selection of the currencies is largely consistent with the production sites shown in Figure 2 and its customer locations. According to Figure 3, New Zealand appears to be the second largest origin of its revenues and the non-current assets, after Australia. Nevertheless, the exchange rate risk associated with New Zealand dollar seems smaller than the aforementioned currencies. This can be due to the successful hedging strategies enforced by the company. Based on the information provided in Figure 1, as the appreciation of USD and RMB against AUD have an adverse effect on its net profit, we expect that there is a negative relationship between the stock price of the company and the exchange rates of AUD against those currencies (when they are denominated in per AUD). On the other hand, PGK and the stock price would have a positive relationship. However, we have to note that the impact of changes in those currencies appeared in Figure 1 merely reflects its translation exposure, in other words not the transaction exposure which influences company’s cash position. Commented [A3]: The title is not so informative Commented [A4]: In most cases in the report, CNY is used to represent yuan. Be consistent. Commented [A5]: Why? Figure 1: Dulux net exposure to foreign currency movement Source: Dulux Group Commented [A6]: For which year? Commented [A7]: The table is a bit busy and hard to extract relevant information. May be better to summarise the information and prepare your own table. Figure 2: Dulux production sites Source: Dulux Group Figure 3: Dulux proportion of revenues by countries and regions Source: Dulux Group Next, we examine the relationship between the stock price of the company and those three currencies. In order to conduct the analyses, we have obtained stock price and the currency exchange rates against AUD (in the notation of per AUD) from January 2010 to January 2017 in a monthly basis. The data are in the monthly return format. Figure 4 examines the relationship between the stock return and the return of each currency return. It appears that in some instances, the stock price and the exchange rate are moving in the same direction (e.g., in 2010 and 2011). However, it was somewhat expected from the progressive phenomenon of global integration, the three currencies are taking similar paths. To take this into account, we believe that we have to conduct a statistical analysis which allows us to control such an issue. One way to overcome this is to run a multiple regression. The regression results are presented in Table 1. In the regression model, the stock price return is used as a dependent variable and the three currencies are used as independent variables. The analysis obtained a relatively low coefficient of determination value. This is reasonable as there are various other factors affecting the value of the company. Thus, our main focus is the betas obtained in the analysis. While the coefficients for the currency variables are statistically insignificant at 10 per cent level Commented [A8]: For which year? Commented [A9]: Need to support your argument Commented [A10]: What is the actual value? And this suggests? (this may be a reflection of the currency exposure observed in Figure 1 is the translation exposure), we can still provide economic implications of the coefficient values. In particular, 1 per cent increase in the AUD against USD and PGK pushes the stock price by 0.3% and 0.7%, respectively. By contrast, 1 per cent appreciation of AUD against RMB causes 0.7% decline in the stock price. Interestingly, for the PGK and RMB variables, the sign of the coefficients obtain in the regression analysis are inconsistent with the expectations drawn from Figure 1. This implies that there may be some economic type of currency exposures with those countries. In the next section, we make 1-year forecasts for the relevant currencies. Commented [A11]: Why? Commented [A12]: In some cases, “per cent” is used. Need to use a consistent term. Commented [A13]: What was your expectation? Figure 4: Dulux stock price and foreign exchange rate returns (monthly basis) Source: Yahoo Finance, the Reserve Bank of Australia Table 1: Multiple regression result (monthly basis) Regression Statistics Multiple R 0.285 R Square 0.081 Adjusted R Square 0.044 Standard Error 0.048 Observations 78 Beta Std. Err t Stat P-value Intercept 0.01 0.01 2.19 (0.03) USD 0.34 0.76 0.45 (0.65) CNY -0.71 0.75 -0.95 (0.35) PGK 0.67 0.42 1.60 (0.11) Source: Yahoo Finance, the Reserve Bank of Australia Note: This table presents the regression analysis result. The dependent variable is the stock price monthly return of Dulux and the dependent variables are monthly return of USD/AUD, CNY/AUD and PGK/AUD. 2. Currency forecast This section provides the forecasts of three selected currencies using two different approaches, the International Fisher Effect (IFE) and the Purchase Power Parity (PPP). Required data for making the forecasts are shown in Table 2. The forecasts are presented in Table 3. According to the IFE, AUD would worth 0.76 USD, 2.582 PGK and 5.323 CNY in 1 year. By contrast, based on the PPP, AUD would worth 0.77 USD, 2.5646 PGK and 5.272 CNY. While there is no liquid forward market for PGK, the value of AUD in 1 year is quoted as 0.7614 USD and 5.3309 CNY under forward contracts. As there are deviations between the forward rates and our forecasts, there may be exploitable arbitrage opportunities. However, the deviations generally are small and therefore, after considering transaction costs such an opportunity is believed to disappear. If we assume that the forward rate is a good predictor of a future spot rate, the IFE may be a better method to be used. This is because, by observing the difference between the forward rate and our forecasts, the deviation is less than 0.2% with the IFE while the deviation becomes considerably larger (around 1%) with the PPP. A further analyses including testing the accuracy of our forecasts by conducting a back test can be done upon request. Commented [A14]: The title is not so informative Commented [A15]: Explain what those are with appropriate literature backup. Commented [A16]: Enumerating those numbers hardly are informative.