Strategy for hedging and multinational tax management

 Under the high competitive market nowadays, the multinational trading becomes more and more popular for the general organization. It is an effective way to expand their market and to achieve more profitability in the global size market. However, the multinational trading will involve more risk and various tax rate issues during the transaction. Therefore, the risk management and multinational tax management plays an essential role to reduce the risk and the unnecessary cost on the international trading.

Firstly, the international trading will meet the currency issue. The exchange- rate of nation is changing every day, and it reflects the situation of market for the country. On the other word, the exchange rate affects that the investor wondering to put investment in the country or not. Additionally, the changes of exchange-rate raise the risk of investment for companies. However, the Hedging policy is an effective way to reduce the risk by multinational transaction on credit for general organizations.

The hedging policy is not only adopted for reducing the managers risk, but also it is possible to reduce the cost from the financial distress and adjust capital structure, reduce the investment incentives and ensure the investment opportunities. In addition, the forms of hedging can be concluded by netting which is change the gross amount of currency to the net amount for multinational trading, leading and lagging which is the strategy to decide the best payment time. Also, the hedging policy could be used through financial instruments to choose the right time and specific exchange rate to make the currency transaction as result the risk and cost could be reduce by the changes of exchange- rate.

In the Wall Street Journal of ‘Strong Start to 2013 for Asia Hedge Funds’, the hedge funds had performed excellent in Asia on January, especially in Japan. Due to the earthquake occurred in Japan in 2011, the hedge fund is operating difficultly in the last two years. However, this January Japan had gained a good risk returns to equity markets which is returned up on average 4.15%. For the other countries in Asia, the hedge fund returns 4.02% according to data from EurekaHedge.

Due to the good performance of hedge fund in Asia, investors might take more attention on the Asia market. The high-performing hedge fund ensures not only the lower risk on the investment, but also the better long-term profit could be achieved in that market.

What’s more, the multinational trading also involves the tax issue which means that the different regions are holding the various tax rates for trading. In order achieving more profit and maximize shareholder value, trading with the lower tax rate country is an effectively way to makeup this goal.

The chancellor told BBC News: "We want a tax system that makes it competitive for businesses to set up in Britain and create jobs, but we also want a tax system where business pay their taxes and that's what we're setting up achieving here with other countries at this meeting in Moscow.” This illustrated that the high tax will be suffered by the large organizations which set up company at high tax-rate region such as Europe, UK and North America. The joint venture to the low tax rate countries is a possible way to solve this problem.

Tesco multinational venture and Indian supermarket open up

Collaborative ventures and foreign subsidiaries globally are always the effective and important strategy for raising finance for organizations. This should be considered about the performance of cost of finance, such as the cost of capital and the expected investment of return. In domestic market, the liquidity of securities market is limited and capital market is small. However, In the international market, it is not only provide a more liquidity of securities market and larger capital market, but also companies are possible to improve liquidity of shares and provides a market for new events, also the share price could be increased by handle illiquid and segmented market. Additionally, the firm visibility and political acceptance could be improved for their stakeholders as well.

In order to make a better performance of cost of capital, investment of return, the weighted average cost of capital (WACC) concept is a significant method for managing finance. In this method, the debt and equity financing is used for calculating the minimum level of return on investment.

In the BBC new of ‘India opens retail to global supermarkets’, it is illustrated advantages and changes after India open up its lucrative retail sector to global supermarket chains. However, this decision had impact their market deeply. The foreign airlines had brought 49% stakes for local carriers as result the trouble of Indian airline industry has been increased and the price of dramatic diesel had been raised 14%. On the other hands, there are some benefits had been brought by this decision. There are many business leaders backed to the Indian supermarket market and the more investment had been attracted, therefore, the economy of Indian increased by this decision. Many companies has already invested entirely $100m (£ 67m) for Indian industry, such as Tesco, Wal-Mart and Carrefour, they have already built their own outlet in town or high population cities in Indian. For the benefit of multinational retailers, Wal-Mart said that ‘lower the price of products, improve the livelihoods of farmers and ease supply-side inflation’.  

In this case, the Indian open up their supermarket market in the global wide, there are more benefits are possible to be predicated. Firstly, the more investment from foreign countries will be liquid in the Indian market. Secondly, the more new design of product will jump in the market and it is possible to improve the Indian technology level. Thirdly, the Indian manager might learn the advanced management strategies from the venture companies.

On the other hands, the benefits for the company which venture into the Indian market could be highlighted. According to the Mail news of ‘Tesco to venture into giant Indian market after their government allows foreign superstores’, Tesco had took the effort for learn the Indian consumers ahead of entry laws and the big chains have joint forces with local players, as result Indian market is became the crucial one for the Tesco, additionally, Tesco had achieved that its international business accounts for a third of group sales.

Stock Exchanges and Stock Martet Efficiency

In order to discuss the stock exchanges and stock market efficiency, it is necessary to talk about the capital market first. In the current fast moving economy situation, capital market plays a significant role for all investors. It is running between the two important components, saving and investment. Capital market is financial market for the buying and selling of long term debt or equity backed securities. It as broker exists between the investors and ultimate borrowers. If there is no capital market, business probably is running with high risk and low liquidity. The modern method to reduce risk and increase liquidity is selling shares and bonds to investors. The “broker” will assist business to transform asset through offering securities. In addition, capital market brings benefit to three fields: economy, savers and companies.

As a part of capital market, the stock market is doing the similar things. They both are serving a common purpose of providing a mechanism which to assist firm raise capital for their business operation. And capital market is including in stock market and bond market. The stock market is the only platform for trading shares. However, the business operation good or bad is linking with their share price. The share price increasing, investors could obtain more profit, and the share price fall, investors might loss. Therefore, gaining information from the company and the prospect of company operation is important. Fama (1970) has identified three forms of stock market efficiency based on efficient market hypothesis (EMH):

The weak form efficiency which claims all past prices of a stock are reflected in today’s stock price. So technical analysis cannot be used to predict and beat a market, but investors could seek profitable companies can earn profits by researching financial statements.

The semi-strong form efficiency is implies all public information and history is calculated into a stock’s current share price. Therefore, the fundamental and technical analysis can be used neither to predict market.

The strong form efficiency is states all information in a market, whether public or private, is accounted for in a stock price. This degree of market efficiency implies that profits exceeding normal returns cannot be made, regardless of the amount of research or information investors have access to.

Based on the news of Sony’s Smartphone Gambit which be found on the website of Wall Street Journal, the stock price of Sony has fell 10% to ¥1,365 after the company reported a net loss of  ¥10.8 billion for the three months through December. This could be a kind of evidence to prove Sony Company is running by semi-strong form efficiency. According to the BBC news of Sony shares slump 10% after reporting losses, this was the biggest fall from company joint Tokyo stock exchange and this drop was react quickly and rationally. In addition, the Sony’s Smartphone Gambit points out that Sony shipped 9.8million smartphones and its global market share rose to 4.5% from 3.9% a year earlier. Therefore, the Efficient Market Hypothesis of Sony is semi-strong form efficiency.

Facing the Pain of Souring Apple Shares

It has been reported this week in the Wall street Journal that "Coping With the Pain of Souring Apple Shares". The report has been analyse the Apple troubles and situations, the effect to shareholders and the strategy from shareholders. In my opinion, this case is the most suitable one relative with the last week topic of “International Value Management”.

Apple Inc. recently staying on the big trouble on the stock market in the U.S. their shares from the peaking at $705.07 on 21st of Sept has fallen to the $453.62 at 1st of Feb this year. This fall has affect about 60%of actively managed U.S. stock mutual funds that invest in big companies owned at least some Apple shares at the end of the year. However, it is not all of shareholders took losses. The solution of Apple Inc. to protect their shareholder is creating a total return, including dividends, of about 28% annually over the past five years, versus 4% for the Standard & Poor’s 500-stock index.

Facing this pain, there are four reactions occurred on professional money managers and small investors. They are Balling out, Staying the course, Seeing a cheap stock, Sitting out.

Some investors are selling their stakes in order to getting away from the pain. Some chosen staying the course and hoping the future development, this reaction still is assuming the risk for further loss. Some chosen Sitting Out. Because Apple's drop provides some vindication for the few money managers who didn't hold Apple during its bull run and saw their portfolios trail. And lastly, some investors have planned to change to the cheap stock. Mr Barr said he still believes the stock is cheap and that the company might see hot earnings growth as it introduces new products, such as a rumored cheaper iPhone or television set.

In order to finding the right reaction, it is necessary to consider about the share values and time value of money. The traditional methods to work out the time value by  calculation of EPS and ROCE. however, nowadays, managers is more accurately to using method of NPV. 

However, facing the pain of Apple Inc., it is important adopt some changes for organisation. Creating value might be the possible ways to holding the old investors and attracting news investors. additionally, there are five possible ways to creating values: 
1. Increase the return on existing capital
2. Raise investment in positive spread units
3. Divest assets from negative spread units to release capital for more productive use
4. Extend the planning horizon
5. Lower the required rate of return

Mr. Mulholland said that " It's been a headache, but not a cancer." It shows that many investors is hoping the reborn of Apple. therefore, the pain of Apple Inc. is probably not suffering for long time.