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Macquarie Bank Essay

3401 words - 14 pages

Table of contents
Question 1 ............................................................................................................................................... 1 1.0 Sizable exposure to the foreign exchange risk .............................................................................. 1 2.0 Types of exposure ............................................................................................................................ 1 2.1 Capital Adequacy ........................................................................................................................ 2 2.2 Cash flow ...view middle of the document...

............................................................. 5 3.2 Details of Macquarie’s hedging policies .................................................................................... 5 Question 3............................................................................................................................................... 6 4.0 Expectations of future value of Australian dollar and recommendation ................................... 6 4.1 Analysis on AUD/USD rate......................................................................................................... 6 4.1.1 Low borrowing rate.............................................................................................................. 6 4.1.2 High inflation rate ................................................................................................................ 6 4.1.3 Increased current account deficit........................................................................................ 7 4.1.4 High increase in Government debt by removing debt ceiling .......................................... 7 4.1.5 Jumping in import price and flat export price .................................................................. 8 4.2 Exposure of Macquarie’s cash flow ........................................................................................... 9 4.3 Our hedging strategies- currency options and currency swaps .............................................. 9 4.4 It works....................................................................................................................................... 10

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Question 1 Based on Macquarie’s 2013 financial report, Macquarie is exposed to foreign currency risk due to the transactions entered into its normal course of business. Thus, its investments in foreign operations will be influenced. Due to movements in foreign currency exchange rates, the revaluation of certain balances will result in gains or losses in the income statement and the revaluation of foreign operations will result in the foreign currency translation reserve. 1.0 Sizable exposure to the foreign exchange risk MQG is a global provider of banking, financial, advisory, investment and funds services. Morningstar DatAnalysis shows its segment performances by geography in 2013 are as follows:
Countries Americas Asia Pacific Australia Europe, Middle East and Africa Revenue(million) 1,591 380 2,820 710

The table shows the international markets contribute approximate 50% of total revenue of MQG. Besides, Macquarie is holding large

amount of investments all over the world, which makes it suffer a high level of foreign exchange risk. For example, Macquarie has $1,756 and 1,345 million foreign government securities in 2013 and 2012 respectively from notes of its financial statements. In cash flow statement, large amounts of transactions could happen in the international market. MQG took this part of the foreign exchange risk into...

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