In response to Rip Curl’s inquiry to issue bonds in Switzerland, this report aims to cover the positive and negative aspects of such a solution and attempt to determine a solution that will be the most feasible.
Although the interest rates in Switzerland are relatively low compared to those in Australia, by issuing these bonds overseas, Rip Curl are inherently taking in risks associated with the market that may include:
- Foreign currency risk
- Inflation risk
By relying on the exchange rate staying constant through the term of the bond, Rip Curl is taking on the risks of the foreign exchange market. For example, say that the exchange rate is $1 AUD is equal to $1 CHF, and that Rip Curl issue a $100 face value bond for 1 year with no coupon …show more content…
Therefore, by planning the issuing of bonds years in advance and by following these trends, it is possible to predict the periods of the year when the foreign exchange is ideal for issuing and paying bonds. However, this over simplified model does not account for the external factors that influence the foreign exchange rate. By including these external factors such as: the risks posed by inflation; a country’s political stability and differentials in interest rates, the exchange rate can differ almost unpredictably, more on the topic of how exchange rates change, see Van Bergen J., …show more content…
Finally, Rip Curl could sell stocks in the equity market, which would diversify assets as well as alleviate risks away from the owner, more on the topic by Simpson S. D. (2012). This would be beneficial when the objective for Rip Curl is to expand their business.
In conclusion, there are a multitude of methods in order to venture the $500 million capital that are available to Rip Curl. As the main objective is to expand the business overseas, the most desirable options to face Rip Curl are those that provide a diverse range of investors. Since Rip Curl lack a credit rating from Moody’s or Standard & Poor’s, bonds may be extremely costly after this rating is obtained. Therefore, a combination of issuing bank accepted bills and selling stocks on the equity market are the most ideal
Although the interest rates in Switzerland are relatively low compared to those in Australia, by issuing these bonds overseas, Rip Curl are inherently taking in risks associated with the market that may include:
- Foreign currency risk
- Inflation risk
By relying on the exchange rate staying constant through the term of the bond, Rip Curl is taking on the risks of the foreign exchange market. For example, say that the exchange rate is $1 AUD is equal to $1 CHF, and that Rip Curl issue a $100 face value bond for 1 year with no coupon …show more content…
Therefore, by planning the issuing of bonds years in advance and by following these trends, it is possible to predict the periods of the year when the foreign exchange is ideal for issuing and paying bonds. However, this over simplified model does not account for the external factors that influence the foreign exchange rate. By including these external factors such as: the risks posed by inflation; a country’s political stability and differentials in interest rates, the exchange rate can differ almost unpredictably, more on the topic of how exchange rates change, see Van Bergen J., …show more content…
Finally, Rip Curl could sell stocks in the equity market, which would diversify assets as well as alleviate risks away from the owner, more on the topic by Simpson S. D. (2012). This would be beneficial when the objective for Rip Curl is to expand their business.
In conclusion, there are a multitude of methods in order to venture the $500 million capital that are available to Rip Curl. As the main objective is to expand the business overseas, the most desirable options to face Rip Curl are those that provide a diverse range of investors. Since Rip Curl lack a credit rating from Moody’s or Standard & Poor’s, bonds may be extremely costly after this rating is obtained. Therefore, a combination of issuing bank accepted bills and selling stocks on the equity market are the most ideal