CSU—CTC BUS 383

International currencies of Cathay Pacific

Student name: Dong Xiaoji

Student number: 11479396

Class: International Finance 0818

Content

Introduction 3

The World’s Market 4

How to deal with customers 4

How to handle demand payment for ground services 5

The international monetary system 7

How to raising capital to finance new aircraft 7

Fluctuating currencies 8

How to develop the Cathay Pacific 9

Financial strategies 9

Financial exposure 10

Challenge 11

Conclusion 11

Reference 12

Introduction

The market is more and more mature, the rational consumer is much more sensitive to the price of the market. After the market, entrant grows swiftly and violently, the attack is unceasing, letting the human not be possible to belittle. Cathay Pacific is an international airline which built in Hong Kong. It gives passengers and cargo services to 49 destinations all around the world. The company was founded in 1946 and it had more than 50 years’ history. Except that passenger and cargo services, we have made substantial investment in catering, maintenance and ground handling in order to support the old line, too. Now Cathay Pacific is facing an enormous challenge as it manages its complex holdings of different currencies. There is an acute competition in the industry of airplane between different airlines. The poor economic situation together with improving its services and reducing its cost becomes the main factor of success in the near days. The primary service of Cathay Pacific is the management air line service, the aviation diet, airliner processing and the aircraft engineering. Its under subsidiary company including port dragon aviation and Hong Kong China people aviation. The Cathy Pacific is entire world one originates the member, with the American aviation, the British Airway, the Japanese aviation, the Malaysian aviation, the Spanish country aviation, the port dragon aviation, the Chinese international air, the Russian aviation implements code sharing in the intercourse Hong Kong's flight. For the cargo service, we have 75 percent of shareholding in the all-freight carrier Air Hong Kong Limited (AHK), which operates scheduled cargo services to Japan, Korea, Europe and the Middle East. Next, I will talk some factors of dealing with the fact that customers in different countries purchasing airline tickets in different currencies, the different locations in the world need payment for ground services in different currencies, how to raising capital to finance new aircraft, how to manage the different currencies are fluctuating greatly against each other, the strategies which developing for the firm, types of financial exposure which the company must face and challenges as it manages its financial holding.

The World’s Market

How to deal with customers

As a globalized airline company, Cathay Pacific must face the customers in different countries purchasing airline tickets in different currencies, so how to solve the financial problem, it becomes the key to get more profit.

International Monetary Fund

There is an organization that can solve the international commerce, it oversees the functioning of the international monetary system. It can make the international monetary cooperation come true. It also can make international exchange rate stable, maintaining the orderly exchange rate arrangement between the member nations, avoiding the competitive exchange rate depreciation. Assisting the member nations establishment frequently tardily the multilateral payment system, eliminates the hindrance world trade the foreign exchange control. Under the suitable guarantee condition, the fund organization provides the general fund temporarily to the member nation, enables it to have the confidence to use this opportunity to correct the international payment balance being out of balance, but does not adopt to harm country or the international prosperous measure. China as the member nation of IMF, it provides many advantages of Cathay Pacific, it avoids the inflation by different currencies and the fund loss for countries' various exchange rate. It can promote international financial and the currency domain cooperation and promote the pace of international economic integration.

Changes into the standard money

Standard money, also calls the principal currency, is a national basic currency and the legal valuation settlement currency. The standard money should understand that is the base currency, the currency is one kind of multi-purpose commodity actually, so the standard money is a weight general currency or we can say that is a basic factor of all commodity.

Cathay Pacific may choose a kind of currency as the standard money. The company wants to pack the suit currency, it should follow next factors: first is what this currency major effect commodity and the service selling price, usually carries on the commodity and the service valuation and the settlement by this currency; next is what this currency major effect commodity and the service need the man-power, the material and other expenses, usually carries on the above expense by this currency the valuation and the settlement; the last is what financing obtains the currency as well as the preservation gather the currency which from the operative activity the fund uses. Except that, Cathay Pacific as the Hong Kong stock exchange listing of the comprehensice enterprise, it also trade foreign country, The enterprise designated that the foreign management keeps accounts the standard money, should consider the following factor: One is what foreign border management to the activity which its is engaged in whether to have the very strong independency; next is what in foreign border operative activity with enterprise's transaction whether to hold the great proportion in beyond the border operative activity; then is what foreign border operative activity produces cash flow whether immediate influence enterprise's cash flow, whether can momentarily send back; the last one is what foreign border operative activity produces whether the cash flow does repay the debt which sufficiently its existing debt and may anticipate. For example, it may choose the RMB as its standard money.

How to handle demand payment for ground services

The aviation industry is the sunrise industry, the aviation industry is the gold industry. Then Hong Kong, being an international financial centre, has most of its activities closely related to the rest of the world, so the ground services are of prominent importance. Cathay Pacific as a local based airline plays an important role in bridging Hong Kong with its partners all over the globe. Therefore no matter how to act as the important tool which the people go on a journey or the airplane ground service, the Airline has its essential status. If the company face the fact that different locations in the world demand payment for ground services in different currencies, the financial control personnel must determine that a goal, causes the financial control multiplication and the hierarchical, distinguishes clearly the primary and secondary link, to safeguard customer's superiority, must establish the special department to exchange the currency which for the customer which this country uses. The international enterprise acts into business which should proliferate many countries, involving many kinds of complex managing finances environment and many kinds of financial control convention, this is the international enterprise becomes to the financial control goal choice more complex, this explains the Airline to complete the ground service, must set up the special managing finances environment, moreover must give up “the wealth maximization “ what the temporarily goal. So Cathay Pacific can not give up the goal of the wealth maximization, it should do some method to solve the payment for ground services in different currencies. Simultaneously unifies various countries' the monetary exchange rate, works out the long-term cooperation goal. The enterprise occurs the foreign currency exchange business or involves the foreign currency exchange the transaction item, it must defer to the exchange rate which the transaction uses actually (i.e. bank buying rate or selling rate) converts. The enterprise usually must use the spot rate to carry on the conversion. The exchange rate change is not big, may also use spot rate the approximate exchange rate to carry on the conversion. It should notice the result of after-tax. For Cathay Pacific, it can obey tax treatment, according to new "the People's Republic of China Enterprise Obtained Tax law Implementation Rule" stipulation, enterprise when monetary operation, as well as tax year finally RMB outside currency property, currency debt according to end of the period immediate RMB rate middle rate conversion for RMB when produces the exchange loss, besides already included the related property cost as well as with carries on the appropriation of profit related part to the owner, permits the deduction. Company obtained by RMB outside currency computation, when paid the enterprise income tax, must defer to monthly or the quarter the RMB rate middle rate, the reduce RMB computation should pay taxes last amount of income. The year has collected finally when reckons up gives, to already deferred to monthly or the quarter impost anticipant, no longer how converts into the computation, it has not only paid the enterprise income tax on this tax year in the part, according to the tax year for RMB middle rate to reduce RMB computation should pay taxes last amount of income.

The international monetary system

How to raising capital to finance new aircraft

If a company wants to raise capital , it must put their own credit and reputation before the public . In addition to these , it also should enhance their brand awareness and brand integrity , and to obtain the support and assistance of the public and the government. The method contains that Government investment, large domestic enterprises investment and foreign capital investment. Cathay Pacific which as the biggest airlines in Hong Kong, it has been the good credit in the society., so it is not a problem to get government investment. Aviation enterprises in the investment process , the status quo for the current flow rate and the quick ratio is too low , it should be to minimize the number of long-term investment , reduce liabilities , while increased investment in current assets for some benefits , the amount of funds used long-term investments and fixed asset investment, to strengthen monitoring, generate economic benefits analysis to ensure that achieve the best revenue -output ratio in the case of tying up funds for less. Aviation company should be combine with widen financing channels of operation, consultations and equipment suppliers, consider financing lease expansion financing, for more current aviation liability, asset-liability ratio of higher realities, to minimize the use of bond financing, liquidity shortages, by standardizing the receivable management system. Low according to its own liquidity situation, recommends that the company is using its profitability, and gradually added its own funds, further increase the sources of working capital financing, treat long-term investment, long-term investment not too large, increase the risk of real business. At the appropriate time, capital increase and share in an appropriate manner, is to raise the level of control over corporate assets, but also to increased external financing to improve credit conditions. If the company wants to finance new aircraft, it should expand existing financing ways, financing expansion not only need to measure the demand for funds for enterprise development, and taking into account the scale of various financing channels of financing, capital cost, convenience, and other factors. Can use the strength and reputation of the company in the short term, to improve the level of financial management, seek listing qualifications, you can consider using the platform of listed companies, rights issues, public offerings, and other forms of financing to be taken and the means to resolve. The operation of the actual situation , according to the aviation enterprises constitute reasonably determine the source of liquidity . Comprehensive consideration of various operating factors , the scientific prediction of the demand for funds , both to meet the needs of the company , they can not arrange excessive waste. Then in the crisis situations, risk of financing for larger cases. Efforts should be made to consolidate Aviation Enterprise brand, technology and social relationship resources, adopt various ways to achieve funding, and to ensure the lowest cost of financing, to further reduce financing risks.

Fluctuating currencies

If money market interest rate decision mechanism has undergone a qualitative change, supply and demand is major things to effect currency short-term fluctuation.

Calling for fund decides the market rate, this is the money market general rule. When the currency supplies abundant, market rate is often to supply side fund opportunity cost stem for stem. In the domestic inter-bank market, the supply side of funds to commercial banks , so the opportunity cost of capital is super Reserve interest rate of commercial banks . In the past few years , the central bank each lowered super Reserve interest rates will cause systematic downward movement of the hub of the money market interest rates. Currency fluctuations make the market very volatile and unstable market sentiment, make the financial management of the aviation industry and increased risk. Course of business, to maximize resolve the financial risks facing enterprises to achieve the maximum benefit of the assets on the basis of careful monitoring and management of these indicators system , the implementation of standardized cash flow control , and fully tap the potential of the enterprise funds to make efficient use of funds to get the maximum increase. For the financial management of the aviation enterprise cash flow to pay enough attention to the aviation enterprises can try to resolve the financial risk , a lot of time is not depends entirely on how much of the book profit , more often depends on whether there is enough currency fluctuate to cope with the financial costs to regulate cash flow management processes. Currency fluctuating for the budget preparation process , the need to strengthen the analysis of cash flow , because the enterprise can be reflected through the dynamic analysis of corporate cash flow management, investment and financial policy issues . Standard cash flow budget can provide enterprises with relatively accurate risk warning signal, which can be found in cash flow management , play the purpose of guarding against financial risks. The same time, according to corporate long - term development goals , but also focus on building long-term financial risk early warning system . The basis of the characteristics of cash inflows and outflows in every aspect of the aviation business. Fluctuating currencies, process monitoring, to reduce the risk of cash flow.

How to develop the Cathay Pacific

Financial strategies

There are many strategies for developing to the firm, such as master financing , enabling enterprises to implement cost-effective financing mix, knowing the characteristics of the aircraft leasing, the effective interest rate management and running unique aircraft financing model, the effective operation of capital.

The financial strategy is based on each natural state and other organizations which the tendency which makes to these condition's response, and incident cross-correlation countermeasure. Because the fund and the flowing are the business finance management objects, the business capital balanced, the effective flowing is the enterprise survival and the development base element, therefore how financial control's central content is inevitably about maintains the business capital balanced, the effective flowing.

Under certain management system definitely will have one kind to throw the financing system with it correspondence. Cathay Pacific is a company of stock cooperation, Securities finance this is precisely the international capital market movement mainstream, has the financing main body to be initiative, the raising fund is widespread, life long and so on characteristics. And particularly Stock market financing and bond market financing, expanded has thrown the financing domain. According the time, the economic situation overall is good, central macroeconomic regulation and control oneself after makes the tangible progress, in the economical movement unstable, the ill health factor does not obtain suppresses, the national economy continues maintains grows quickly, the economic efficiency enhances with steady steps. The company finances the existence system flaw and the technical flaw, the market constitutive flaw, the financial institutional flaw and the company governs the flaw, constituted the system flaw, the financing demand non-rationality, the financing method non-rationality, the talented person flaw, the benefit and the risk awareness weak is the technical flaw principal aspect. It should use the Leasing fund. The leasing fund divides into the management to rent generally with the leveraged lease two kinds. This kind of release lever rented the way to be able to gain the property right of use by the low year working cost, after the leasing contract had finished, might also the preferential price purchase the airplane surplus value directly. Next strategy is bank loan. The bank loan is the Airline important sources of fund, generally may account for above 20% which always originates to the business capital. The last one is bond financing. Beside the bank loan, the Airline has also been possible through the issue debentures way war chest. Bond financing including medium and long-term bond financing, short-term accommodation bill financing as well as mortgage bond financing and so on.

Financial exposure

First, cash control is not powerful. The cash earning ratio, this target reflected realizes in the enterprise in the income, the cash earning accounts for the proportion the size, namely, when the time realizes net profit and the cash net current quantity's ratio, this target is helpful to the weight enterprise's profit quality. If this target control not strength, then from will affect the enterprise long-term profit to a great extent realization, will cause the serious profit risk. Then, Fund raising and investment risk. Some enterprises pursue too reduce the capital cost, the cause debt scale are oversized, cause the enterprise the interest expense which undertakes in certain stage to be oversized, cause the serious financial crisis. Regarding aviation enterprise, only then realizes the debt scale optimization, can maximum limit melt the fund raising financial risk, but some enterprises to alleviate the financial strain the present situation, does not give a thought to the enterprise to manage expands the debt amount constantly actually, will further enlarge enterprise's fund raising risk.

Challenge

After the modern financial crisis's situation, how the challenge which the Airline does face to know the reality enabled Our country business management personnel to have certain risk awareness, but also had certain distance in financial control's risk guard consciousness and the effective measure and the realistic condition. Some enterprises the financial control understood merely for simple activities and so on loan, payment, the financial control is in two systems with enterprise's production operation management, has not entered the person Modernized enterprise to manage the track.

Conclusion

Pilot industrial action , terrorist attacks in the U.S. and global economic downturn affected the the Cathay image and performance , we will endeavor we achieve our goals - to maintain our market sectors in the aviation industry and keep our costs and income and expenditure in the breakeven point and set higher goals.

Financial Management is the overall objective of the asset purchase, capital facilities and operating in the working capital as well as the distribution of profits. Financial management is an integral part of enterprise management, according to financial laws and regulations, in accordance with the principles of financial management, organization of corporate finance activities deal with the financial relationships of economic management. Simply said, financial management is the organization of corporate finance activities , and financial relationships of an economic management.

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International currencies of Cathay Pacific