Australia – China Currency Exchange Rates

An exchange rate is the amount of currency in terms of another. The concept is essential
to the economy because it affects trade and money flow in the economy. The effects can either
be direct or indirect. Some of the immediate implications to the economy include acting the price
of goods and services. The indirect effects include the operation of economic activities and the
issue of inflation relative to the cost of commodities produced domestically and internationally.
The changes will equally be felt on the balance of payments, and trade organizations will be
affected. The investigation will focus on the effects that appreciation and depreciation of the
Australian – China exchange rate had on Billabong company investments both in the short – and
long–run.
The exchange rate between Australia and China is unpredictable. Appreciation and
depreciation impact the exports and imports in a country. If there is an appreciation, it implies
that the value of the Australian dollar has increased relative to that of the United States. In the
years 2009, there was an increase in the currency of Australia by $0.94 (Hill, 2021). The surge is
expected to have two main effects on Billabong past and future investments in China. An
appreciation in the dollar’s value implies that more money is needed to purchase a specific
amount of the Australian currency. Billabong organization will be selling their goods and
services at a much higher price. The effects are equally expected to be felt overseas.
Appreciation in the exchange rate between the two countries makes results in an expensive cost
of products. The focus will be on short-term investments where yields can be obtained at the
moment and not in future, where there is uncertainty on how inflation will affect the stocks
(Mostafa and Ghodsbin, 2017). There will be less exportation, and income flow into Australia
will equally be limited.
A depreciation in the Australian dollar implies a decline in the currency relative to that of
the United States. A depreciation in the value of the Australian dollar suggests that there is a loss
of value. There is a need for less foreign currency in purchasing a specific amount of the
Australian dollar. Billabong would buy raw materials to manufacture their surf at a much lower
price in the local markets. Therefore, the products and services being offered by the company in
Australia would be cheaper. If there is depreciation, the goods being sold by the company are
relatively more affordable compared to those that will be presented in the international market
(Mostafa and Ghodsbin, 2017). There will be an increase in the demand for goods and services
from Billabong in the global space. Therefore, stocks investment will make more sense in China.
They are more likely to yield higher outcomes if their investment is made on a long–term basis
where the yields are expected in future. For instance, in the case of Billabong, foreign investment
due to the declining rate of exchange with China results in a 10 % decline in the profits generated
in the 2010 financial years (Hill, 2021).
In conclusion, an increase in the exchange rate affect the investment made by an
organization negatively. However, a depreciation investment in stock is a viable decision, and
the expected yields are likely to be higher. The variation between the two is due to the issue of
change in the interest rate and a fluctuation in the rate of inflation. A consideration of the two
variables will make it easy for the management to evaluate the level of effectiveness of the
venture.

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References

Hill, C. (2021). International Business: Competing in the Global Marketplace. (13 th ed.). New
York: McGraw-Hill.
Mostafa, B., & Ghodsbin, F. (2017). Fiscal Stabilization Policy. Journal of Research Economics,
30(2), 24-31.