Required to analyse the case drawing on the knowledge, concepts,
and decision tools covered during the course to answer the
Required to write one case analysis report maximum 500-1000 words that addresses the case questions. Report can be based on the information provided in the case; however you are encouraged to research additional data, information, or evidence to strengthen your arguments.
Main purpose of this assessment is to development is to develop your ability to analyse and evaluate the global issues that confront international businesses.
Assignments are to be word-processed. The use of strict, professional expression is expected. The Harvard referencing style is to be used. Proper referencing.
Riding the Australian dollar rollercoaster
A survey released in 2013 found that Australia is one of the cheapest places in the world to buy a new iPad. The analysis by commonwealth securities compared the prices of a 16-gigabyte iPad across 46 countries and found that Australia was the fourth-cheapest place to buy the device, after Malaysia, Hong Kong, and japan. The survey compared the prices by using Purchasing Power Parity(PPP) to compare the price of a particular good in different countries according to the local currency. Although only the one measure of the comparative value of different currencies, survey did raise questions about the whether the Australian dollar was overvalued. But much has changed since then.
A similar survey by The Economist magazine, the Big Mac Index, conducted in July 2014, reached the conclusion that the Australian dollar was only slightly overvalued in July when it was around US 94 cents. This is higher than the rates suggested by analysis of commodity prices and the interest rate difference between Australia and the United States, which place the long-term fair value of the Australian dollar at about 88 to 90 US cents. Despite differences between analysts, it is clear that in recent years the Australia dollar has been soared above its long-term average in the US 70 cents to 80 cents range following the start of the mining investment boom. For most of the past two decades the Australian dollar has been 30 per cent above its average value. But it has been a wild ride over the past decade or so with the Australian dollar falling to about 55 US cents back in 2001 before easing to 110 US cents in 2011 and last week falling to around 80 US cents.
However, some economists say the dollar still has some way to fall to reach fair value. â€œAustraliaâ€™s very expensive. The level of the dollar which would be fair from a PPP-perspective is about 75-80 US centsâ€ said ANZ currency strategist Andrew Salter. â€œThat's based on relative consumer prices in Australia and the United States. That's a pretty stable relationship. In fact the IMF and the World Bank, the Wharton Business School and HSBC also put PPP fair value within the range.â€ This is supported by forecasts from National Australia Bank and Goldman Sachs, which correctly estimated that the Australian dollar would fall to around 80 US cents by the end of 2014.
Several factor lead currency analysts to conclude that the Australian dollar is likely to continue to slide against the American dollar. First, are the domestic factors of softening commodity prices, slowing economic growth, and easing of Australian interest rates from previously high levels. In particular, iron ore, Australiaâ€™s top export, lost more than half its value in 2014 with the price last Monday sinking to US$69.80 per tonne. Second, are international factors, which include the US Federal Reserveâ€™s completion of its US bond buying program in the first half of 2014, signs of further recovery in the US economy, and expectations that American interest rates will rise this year. The Australian dollar when the government announced last October that it would commerce airstrikes in Syria.
For Australian exporters, forecasts of a lower Australian dollar are welcome news. The lower dollar has helped both farmers and miners to offset the effects of depressed commodity prices. For example, beef exporter Richard Rains explained that â€œevery cent in movement in the A$ is worth the equivalent of $45 million to cattle producersâ€. Although global beef prices have been high for several years the benefit back to producers has been eroded by the high dollar. But the falling dollar in recent months and record production of commodities such as beef, wool, grains, and sugar is expected to inject more money through Australia supply chains.
But not all Australians are happy to see a lower currency. Importers, shoppers, and Australians travelling overseas will feel the pain as the Australian dollar slides. Some importers, for example, have come under severe pressure in recent times, according to one retail expert. Greg Keith, a director at accounting firm Grant Thornton, has been appointed as an insolvency administrator at Aquarium Industries, Australiaâ€™s biggest importer and wholesaler of ornamental fish. The company supplies around 60 per cent of the Australian market, including around 1000 retailers, and has been hurt badly by the sharp fall in the Australian dollar, and the sharp drop off in consumer spending has compounded the problem. Furthermore, economists expect the fall in the currency to result in a rise in Australian inflation, given that 40 per cent of the Consumer Price Index, a key measure of inflation, includes tradeable goods.
Sources: Adapted from Palmer,Â Â Â D. 2015. â€˜Iron ore price reverse gathers pace with new 2pc fallâ€™, The Australian, 13 January; Kwek, G.Â Â Â 2013. â€˜Tide turns for the dollarâ€™,Â Â Â The Age, 13 May; Condon, J. 2013. â€˜A$ could fall to US80c by end of 2014: NABâ€™, Beef Central, 13 August, Gaylican, C. 2013. â€˜Australian dollar outlook â€“ 4 September 2013â€™, IB Times, 4 September; Long, W. 2013. â€˜Dollar drives export marketsâ€™, ABC News, 9 September; McHugh, B. 2013. â€˜Low Aussie dollar cushions commodity price fallâ€™, ABC News, 13 September; Chua, I. 2013. â€˜Dovish central banks keep euro and dollar pinned down, Aussie upâ€™, Reuters, 23 September; Kwek, G. 2013. â€˜Fair or not, the Australian dollar remains overvaluedâ€™, The Age, 24 September; The Economist, 2014. â€˜The Big Mac Indexâ€™, 24 July.Â Kwek, G. 2014. â€˜Australian dollar heading to 80 cents: Goldman achsâ€™. Sydney Morning Herald, 14 March; News.com.au. 2014. â€˜World finance updateâ€™, 26 September; Palmer, D. 2014. â€˜Iron ore sinks to five-year lowâ€™, The Australian, 26 Sept
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