Main Risk Of Bhp And Its Impact On The World's Top Producers Of Major Commodities

Page 3: Introduction to the Financial System Page 7: Commercial Banks Page 12: The Share Market and the Corporation Page 15: Corporations Issuing Equity into the Share Market Page 19: Investors in the Share Market Page 24: Short-term Debt Page 28: Medium- to Long-term Debt Page 32: Interest Rate Determination and Forecasting Page 37: The Foreign Exchange Market Page 40: Factors that Influence the Exchange Rate Page 42: Futures Contracts and Forward Rate Agreements Page 47: Options

he world’s largest mining company, BHP Billiton, has had its credit rating lowered at Standard & Poor’s (S&P). It was stated that “very challenging market conditions and increased demand uncertainty” was the reason the credit rating for the company was altered (Riseborough, 2016). Due to a lower demand and excess supply of oil, the prices of oil and gas become very weak. The result of plummeting prices leads to an increased pressure on the chief executive and the company to maintain their “A” credit rating, but becomes very difficult as these external factors are out of their control.

The spread of globalisation especially since 1990 has introduced many new elements into the financial markets and what determines the value of a nation 's exchange rate. This does not just apply to Australia, but as we saw in the later half of the 1990 's, to many other nations in the world. Firstly, trade in goods and services makes up a much smaller proportion of the demand and supply for currency. In the world economy, payments for international trade only account for about 1% of foreign exchange transactions. The total foreign exchange requirements for exporting and importing of goods and services in Australia is less than 3% of the total use of the foreign exchange turnover in Australian dollars (Reserve Bank Bulletin, Table F7 and Australian National Accounts, 5206.0). The main purpose for foreign exchange trading is international financial transfers of

Understanding the fact, that falling commodity prices and rising dollar cannot last indefinitely, and maybe even bottomed out for now, I see a lot of perspectives within these markets in one year period. Moreover, a lot of forecasters expect inflation to move toward two percent goal during this year, which will result in substantial rise in commodity prices. Although, it is a controversial issue according to the FED projections for the current and the next year, which have been lowered from previous numbers (Table#1).

Risk is defined as an event that has a probability of occurring, and could have either a positive or negative impact to a project should that risk occur. Project managers should keep a watchful eye on all of the project 's risks as they have a direct impact on a project’s cost, schedule, and performance. All projects assume some element of risk, and it’s through risk management where tools and techniques are applied to monitor and track those events that have the potential to impact the outcome of a project.

Risks can be personal or business related. Many risks occur on a daily basis and you must overcome them to get a reward. Risks include; -

There is also risk of volatility with respect to exchange rates in the short and long term

This increase in the price of high commodities are creating a strong incentive for emerging economies to develop and launch more expensive projects to dig and produce more commodities out of the ground, in which they are going to create a massive commodities oversupply to relative demand in the economy. In the same way that the over-valued property prices have allowed

Market risks consist of interest rate risk, foreign exchange risk and commodity price risk. Firstly, SGM’s main exposure to interest rate risk is its borrowings at variable interest rates. As a result, the value of their financial instrument or cash flows will fluctuate. This risk constantly

We believe we couldn’t have chosen a more exciting period to begin this venture. The global economy is being affected by several circumstances that increase financial uncertainty. For instance, the price of oil is near all-time lows, which has put significant pressure on Emerging Markets that have high exposure to the swings in the price of petroleum (e.g. Venezuela, Mexico). Furthermore, a majority of financial experts and analysts suggest that Latin American markets will continue to decline. The US dollar has appreciated in the last few quarters while the Yen has depreciated due to deceleration of China’s economy. Commodities’ prices are very far from their all-time highs. The US Federal Reserve has decided to stop their Quantitative Easing policy and, therefore, increased the interest rates for the first time since 2006. Meanwhile, the yield of bonds continues to decrease, and

Common themes have emerged from the literature focused on commodities and announcements. The number and significance of macroeconomic announcements on commodity prices is lower than that for U.S. Treasury bonds, exchange rates and equity markets. However, a number of key U.S. indicators, including inflation, GDP and employment statistics, repeatedly show the ability to move some

The high correlation between commodity price change and asset prices in Latin America is a well-documented fact. Against this backdrop, the recent upturn in the terms of trade for primary products following four years of sharp decline speaks of an increasingly constructive stance of international investors towards the region (Chart I).

From its definition it can be noticed that hedging is a strategy employed by companies in an effort to safeguard their economic position and to prevent the company from the losses which are associated with the unforeseen risks. Companies can hedge against risks which are associated with losses by taking control of their future purchases. The commodity prices vary in different markets and are caused or influenced by different economic factors. Some commodities are very scarce and with the increased depletion subject to the global demand in different foreign markets, the prices are set to be hiked in response to the established demand which positions the companies that use those particular commodities to have cash flow problems.

Forecasting exchange rates while operating in Bangladesh is a crucial task for every MNC. Basically two prime objectives are available in this scenario which justifies the necessity of forecasting exchange rates for our US based MNC Georgia Power. These objectives are:

Product life cycle stage affected through the magnitude of attraction of a market segment according it attractiveness by competitors. That’s why a growing stage of a market is riskier than a mature one because it attracts competitors and brings volatility. Variations in rates and product demand are synonym of bigger risks. On the opposite, a mature or declining market is less unsure due to the future demand in less uncertain.