Australian dollar Essay

2280 Words Mar 31st, 2014 10 Pages
Question 2
a) A fall in the value of the Australian dollar (AUD) against the U.S. dollar (USD) benefit Billabong in two folds, strengthened price competitiveness and translation advantage. Firstly, the Americas segment accounts for about 50% of Billabong’s sales revenue in 2008 and 2009. (Appx.1) In case of depreciation of AUD against USD, the price of imported surfwear to the U.S. in terms of USD will decrease. The US importers demand more for Billabong’s products. The sales increases from the strengthened price competitiveness. Secondly, when Billabong received payment from the importers, it will translated back into AUD for use in Australia. As AUD depreciate, the receipt in USD can be translated into more AUD than before, bringing
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Billabong may diversify its production by foreign direct investments in the U.S. e.g. set up local production plants. In case of appreciation in AUD against USD, the price competitiveness of products would not be weakened as compared with local products. Flexible sourcing could be applied to allow switch of production from one country to another. Learning from Stanley Black & Decker, Billabong could reduce its import to the U.S. and export more from the U.S. production plant to other countries when USD depreciate against other currencies. This help to create long-term economic competitiveness in the U.S. market.
For diversification of market, a more balanced market distribution is recommended. The current position of Billabong is highly dependent on the Americas segment with almost half of the revenues. If the situation continues, trading in other segments cannot help if the Americas segment fails. Revenues when diversify in different currencies could be better secured from the economic exposure of exchange rate risk.
Smith, P. (2011, Aug 23). Exchange rate kills australian steel exports. Financial Times. Retrieved from http://search.proquest.com/docview/884792617?accountid=16210
(2008, Dec 24). Aussie dollar set to struggle in 2009. Retrieved from
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