Whatdrives the US$ FX rate against the following currencies- Sterling,Euro, Yen, Yuan and Brazilian Real. Europe (Euro).Talk about the war in Greece, talk about the European central bank isprobably going to start Quantitative easing & they had all sortsof deflation
TheEuro has had a period of dominance against the US$. However, thissituation is under threat owing to the situation in such countries asGreece. The war in Greece greatly destabilized the power of the Euroin that its stay within the currency depreciates as well as that itsexit would lead to the loss of confidence in the Euro as aninviolable part of the integration in Europe(Roscini, Schlefer, & Dimitrous, 6).Greece could be a tiny part of the European Union but anything thataffects the nation has a direct effect on the European Union.Firstly, the Euro is symbolic of the integration that exists amongEuropean Nations. The exit of Greece would mean that the region isdisintegrated and it would result to a huge economic loss. Secondly,the withdrawal of Greece from the use of the Euro would lead to thedefaulting of debts as Greeks withdraw their money from Europeanbanks. The banks would in-turn respond to the crisis in the countryand end up not lending to one another and this could lead to afinancial crisis just like was in the case in 2008. The power of theEuro would be eroded and the US$ would dominate.
TheEuropean Central Bank (ECB) ought to adopt Quantitative Easing.Despite ECB’s President Mario Draghi’s reluctance to itsadoption, the move is necessary as it will ease inflation in theregion(Financial Times).Draghi and his team ought, however, to be cautious since QuantitativeEasing is just like runaway inflation. Quantitative Easing works insuch a way that it disguises inflationary measures to look likedeflationary measures (Eichengreen).It encourages more spending through measures that cause awe andshock. People are led to believe that the future is not as theyanticipate of it. Quantitative Easing will be influential to Europeangovernments to reform towards fiscal consolidation and thereby gainthe confidence of investors (Warnock5).Quantitative Easing will, therefore, have earned the appreciation ofthe Euro against the USD.
Yen.The Japanese government is doing “abenomics” – the various thingsthe government does to try to stimulate demand & to break out ofdeflation. In 1990’s, during the asset price bubble in Japan,the growth of the GDP was not able to absorb increase in joblessnessand it became slow(Bnymellon.com).Abenomics is the strategies put in place tin form of fiscal policy,economic growth and monetary policy(Bnymellon.com).The three notable arrows of Abenomics are monetary easing, structuralreforms and fiscal stimulus. Specific strategies consist of inflationtargeting, essential quantitative easing, and public investmentexpansion. From its inception Abe implemented two arrows leaving outone of the three(Bnymellon.com).Japan being the third largest economy is susceptible to go into arecession to the hiking of VAT rates. People will therefore be moreinclined to go for the US dollar as opposed to the Yen. As comparedto other economies the economy of USA is not as weak and thereforeinvestors have been rushing for the US Dollar.
Real:Brazilian Real has beenmorevolatileagainst thedollarwhencomparedto othercurrenciesof theBrick in botheffectiveandbilateralterms.After thedesertionof thecurrencypegagainst theUnited States dollarin 1999, thecentralbankin Brazil has ranandmaintaineda floatingexchangerateregime(Madura41).Theprimarygoalofthe monetaryauthorityhas beento attaintheexplicitinflationtargetthat issetin advanceby theCMN. In March2002 theBrazilian Central Bank launchedtheuseof publiccurrencyswap auctionas a financialinstrumentthat isgearedtowards ensuringa smoothfunctioning of theforeignexchangemarket.In addition,theinstrumentwould alsoactas a sourceof hedgeoperations.Theswap auctionto a largeextent,replacedcentralgovernmentbondsthat wereconnectedto theexchangerate.Thesecontractstradetheexchangeratevariationin additionto localonshore United States dollarinterestrate.Thiscurbstheinflationary effectsthat may arisefrom increaseddemandof dollarsforfinancialpurposes(Madura41).
Yuan:In thefaceof a strongUnited States dollarandsluggisheconomicgrowth,theChinese Yuan has comeunder considerablepressurein therecentpast.To shield its economyandindustries,China is gunning theInternational Monetary Fund to pronouncetheYuan a global reservecurrency.Thisdeclarationwould puttheYuan at thesamelevel as theAmerican dollar,Japanese Yen andtheEuro (Gupta 8). Thewidening of thecurrencybandamid a situationwhereitis facinga strongerdollaris a movemeantto relievetheintensepressurein thecountry’monetarysystem.In thepast,Beijing has consistently devaluedits currencyto maintainits competitiveness against majorcurrencies.IntherecentpastthePeople’s Bank of China hasraisedtheexchangerateof theYuan against thedollarto bringstabilitytotheeconomyin thefaceof tradesurplusthat is evidenced by growthin exports.Chinahas alsosigneda 150 billion Yuan of liquidity swap with Russia to counteractsanctionsimposedby United States on their behavior(Gupta 10).
SterlingPound:In thepresentpast,thesterlingpoundhas powered higheragainst theU.S dollarandothermajorcurrenciesas a resultof astringof goodeconomicmeasuresby thecentralgovernment.In thelastone decade,theBritish economyhas witnesseda stable,consistentgrowth.Theglobal financialpredicamentof 2008 wasthemaincauseofrecessionin Britain. Thecentralbankof Britain andBank of England pronouncedquantitative alleviation techniquein theyearthat followedto supporttheweakeconomy.In thesameway,thesterlingpoundhas undergonethroughupanddownswingsagainstthedollar.Itreachedthelowestlevel in 2001 andthehighestin 2007. In thefaceof a strongdollar,theBank of England raisedtherateof interesttocurbinflation.During thecrisisof 2008-09,thequantitative measuressucceedin loweringinflationrateby reducingthevalueof thesterlingpound(Gupta 17).
i)Is Apple fairly valued? Is their common stock value appropriatelypriced? Value of today’s stock, is that price high or low. Wouldyou buy or sell Apple at that price.
Thequestion on whether Apple’s stock is overvalued is twice-fold. Itsfans may argue that the stock is undervalued and is, therefore, agreat opportunity to purchase the future. However, there are thosewho argue that Apple could be going down owing to the stiffcompetition of brands like Android and failure of various productsthat Apple has introduced in the market(Blodget).
Thosewho believe that the stock is under-valued believe that Apple hasvarious strengths that would not be reflected in its stock value.They argue that the company’s growth has had an average annualgrowth of 30% and that the trend is expected to continue with time(Investor).They also argue that the Apple Company has not bowed down to thecompetition in the Smartphone industry. They also argue their claimon products such as the innovative iTV that was launched in 2012(Blodget). The company has enjoyed lots of benefits from the product as well ashaving managed to beta the competitors. The company also continues toenjoy a large share of the PC market through its Mac products. Applehas also managed to maintain its profit margins despite the intensecompetition that it has been subjected to over the years(Blodget).
Goingby this information, I would ignore things as the post-Steve era andbuy the share. The company has big business prospects and is,therefore, set to grow. The value of the company’s share could besaid to be undervalued. ii)What is the CFO`s job when creating his company’s capitalstructure?
AChief Financial Officer (CFO) is vested with various responsibilitiesthat involve a company’s financial structure and obligations. TheCFO ought to make decisions that determine the financial directionthat a firm ought to take. One of these functions is thedetermination of a company’s capital structure(Agarwal 4). There are various factors that the CFO ought to consider whenformulating a company’s capital structure. The considerations rangefrom financial operations to shareholder reward policies determiningcapital resources accounting operations liability and assetmanagement accountability to regulators decisions on expansions orcontractions to investment opportunities.
Accountingoperations involve the comparison and evaluation of the weaknessesand strengths of a firm through the preparation and subsequentanalysis of financial statements. The CFO analyzes a firm both as astandalone and as part of the industry in which it belongs. The CFOis responsible for overseeing short-term and long-term budgets. Inhis duties, the CFO is bound to follow taxation and accountingregulations and principles.
Theplanning for capital resources involves the identification, selectionand organization of the sources of capital for a firm. The capitalhas to be evaluated against their respective risk-and-returnvariables and profiles(CFO). The CFO ought to identify and choose among the various instrumentsthat are to be geared towards hedging the firm against financial andoperational risks(Agarwal 17).
Financialplanning involves the planning of a firm’s financial strategy(Agarwal 16).It involves the firm’s participation in analyses of collections andcollections, long range economic planning. Te CFO ought also toadvise on expenditure and capital assets. It is also the role of theCFO to be in constant liaison with various financial intermediaries.
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