Closing case Billabong Essay

Billabong is an Australian company.

They make surf wear. from wet suites and board trunkss to Jerseies and tickers. 80 % of Billabong gross revenues are from outside of Australia. 50 % of which are from the United States. Billabong is reliant on a strong U.

S. dollar against the Australian dollar. Billabong relied on the fact that the quickly weakening Australian dollar in 2008-2009 and waited for net incomes to skyrocket.

Due to the addition in demand of Australian exports and sell-off of U. S. dollars the Australian dollar strengthened drastically and the U. S. dollar weakened destructing any competitory monetary value advantage Billabong had. One cent motion in the U. S. /Australian dollar exchange rate means a 0.

6 per centum alteration in net income for Billabong. 2009 Australian dollar gained its value. predicted 10 per centum in net income diminution for Billabong.

1. WHY DOES A Fall IN THE VALUE OF THE AUSTRALIAN DOLLAR AGAINTS THE U. S. DOLLAR BENEFIT BILLABONG?Billabong relied entirely on the foreign exchange market particularly on the United States with 50 per centum of company’s one-year gross revenues. Whenever the U. S.

dollar gets strong against Australian dollar. it makes their merchandise less expensive in United States. When merchandise becomes cheap it generates gross revenues and additions company’s net income. The company’s CEO stated that every cent motion in the U. S. /Australian dollar exchange rate means a 0.

6 percent addition in net income for Billabong. Whenever Australian dollar additions it value in exchange for U. S.

dollars Billabong merchandise monetary value addition. which causes in lessening of gross revenues and lessening in net income.2. COULD THE RISE IN THE VALUE OF THE AUSTRALIAN DOLLAR THAT OCCURRED IN 2009 HAVE BEEN PREDICTED?It could hold non been predicted to be exact but it can give an thought of the addition by looking at the currency exchange rate prognosis. The state of affairs that cause addition in value of Australian dollar was down of U. S. economic system and the higher demand of Australian merchandises by states like India and China.

When United States economic system started traveling down and the U. S. dollar fring its value. The universe found out the high national debt of United States doing the value of U.

S. dollar to diminish. Australian dollar started increasing value at the same clip. Some factors that can be studied to larn possible rise and down of Australian dollar are the currency foreign exchange rate. country’s foreign investing. employment. national debt and many more.

By analyzing factors like this that affects country’s economic system it can give a intimation of Australian dollars’ value will increase/ lessening.3. WHAT MIGHT BILLABONG HAD DONE IN ORDER TO BETTER PROTECT ITSELF AGAINST THE UNANTICIPATED RISE IN THE VALUE OF THE AUSTRALIAN DOLLAR THAT OCCURRED IN 2009?Billabong could hold protected itself from the foreign exchange hazard by utilizing forward exchange rates.

which is an exchange rate regulating future dealing. Billabong besides could hold protected it self by being less dependent on foreign currency rate alteration. It could hold engaged in currency barters to take down the hazard that Billabong was confronting as a consequence of Australian dollar value increasing.4. THE AUSTRALIAN DOLLAR CONTINUED TO RISE BY ANOTHER 20 PERCENT AGAINST THE U.

S. DOLLAR IN 2010 AND 2011. HOW WOULD THIS HAVE AFFECTED BILLABONG? IS THERE ANYTHING THAT BILLABONG MIGHT HAVE DONE TO LIMIT ITS LONG-TERM ECONOMIC EXPOSURE TO CHANGES IN THE VALUE OF THE CURRENCY IN ITS LARGEST EXPORT MARKET?When the value of Australian dollar will lift by another 20 per centum it will do Billabong’s net income to travel down approximately 20 per centum. It will do the value of merchandise to lift in American market.

When the monetary value in American market addition. purchaser value decreases because of dollar fring its value. When sell decreases.

net incomes for Billabong goes down. Billabong CEO stated that each cent motion in Australian/ U. S. currency exchange rate means 0. 6 per centum net income addition for Billabong. So when there is 20 per centum motion in exchange rate between Australian and U.

S. dollar. the per centum of loss can be calculated by utilizing the ratio. Billabong could hold prevented it self from the long-run economic alteration by utilizing frontward currency exchange rates and currency barters. This manner the company would non be affected when the Australian dollar additions its value against U. S.

dollar value.


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