Now problem is that, the payment is to be made in three month time, and there is a risk of volatility in Post-Brexit issue (separation of British market from European Union).
Lot of investor and analyst remarks that, due to Post-Brexit, if it is hard-Brexit, the market for gold will soared i.e. it will move upward. The reason behind this believes is that, investor will pull money from stock market and banks and reinvest into safe heaven instead. They will look for real money such as gold and silver (Al-Joundi, 2012).
In other word, if the foreign currency is depreciated, it will be advantageous for Real Rinto to pay after specified period
In this condition it is clear that price of gold will move up from $1300 / ounces, in this condition, Real Rinto should obtain future contract.
As given in question
Real Rinto has obtained the forward rate/bid offer quote for Australian dollar per pound which is 1.72/50 as provided data for three month
The requirement for Real Rinto = 1000 oz
Contract price as given = USD 1300 / ounces,
The given price reveals that bid price will be =1.7200 AUD and Ask price will be 1.7250 i.e. we can buy at 1GBP at the price of 1.725 AUD
Based on the above calculation,
Real Rinto has to receive 1040000 * 1.72 = AUD 1788800 Ans.
Advantage of this method is,
- Hedging itself gives a safe protection of volatility of market, and as given market is unexpected against the future.
- The Brexit condition given in problem, there is huge chances of falling pound in Britain economy; therefore, Gold is safe haven for investor.
- If Post-Brexit, market takes boom, the Real Rinto has to lose money.
- Perfect hedging is very rare thing, difference may occur due to lot size
From last four years, Japan is in regular news and attention than any other countries which was under reform in economic policy, after return as a second time of liberal Democratic Party and retaking as a prime minister oath of Shinzo Abe, itself attracted media in 2013. But out of this prime ministership and party politics, there is one more thing which has grab attention towards Japan, and it is bold action regarding economic reforms that has been planned for Japan’s future economic policy. The policy is coined as “Abenomics”. Before this policy revival, Japan as a country also tried fiscal stimulus with government expense, but in this policy public debt is enormously increased and finally failed ( (Tay, 2013).
The proposed policy consists of three sub policy, which is also named as three arrows, these comes as headlines of aggressive monetary policy which relates to high expense and financial leverage for public which tasked under first arrow, The second arrow consists of Expansion of fiscal policy which is highly useful for financial transaction in short term and after that financial amalgamation of policy related issue for target of mid-term. The third arrow consists of reformation of infrastructure which is related with economic structure of Japan, this arrow also consist of redesigning the regulation, optimising the productivity, and sustaining the competitiveness of the economic system. From the above three arrow it was also analysed that it is an attempts to assemble the pieces of Keynesian, Monetary and Neoclassical policies, initially these policies are states as conflicting to each other. The first two arrows is clear explanation of neo-Keynesian and last arrow heading similar to neoliberal policy provided by PM Koizumi (Miguel, 2017).
The various researchers and economist like Al-Joundi, Anon, Bukowski, Bingham, Brigham, Anon, Greenwood, Hosomizu, Le-chevalier, Miguel, Pritchard, Pritchard and finally Tay, have given their opinion periodically, my criticism is based on these researcher’s article. Most of the common criticism on these articles is that, this kind of policy is not new to the world, American have already given reform in response of global financial crisis, as discussed earlier, Japan itself tried similar policy during Koizumi, that is why this reform is also doubtful, because all above stated similar policies is also not very fruitful.
For the initialization of first arrow, The Bank of Japan declared its quantitative easing, its ambition and size of effort is bigger than previous policy. Due to double money circulation yen is depreciating continuously over the past year i.e. 16% as compared to dollar. We can take another example as Thailand, Japanese automaker are making regional base to this countries and also has strong export coordination. Due to depreciation of yen Japan exporting their auto part at much cheaper price. A weaker yen is still has more economical impact on Thailand. This same condition is also for other Asian countries (Long, 2013).
The effect of second arrow policy is clearly seems ineffective, because there is increase in domestic demand of the country, the outcome of this demand reveals that this will not benefitted for Japan’s Export partners. Declined Yen also affect at this point, the import of good for Japan will become costlier, in this this way they will buy fewer foreign goods and export from other countries to Japan may go down with time (Bobowski, 2016).
The policy like Abenomics is trying to encourage more production from Japanese companies, but fact is that they cannot absorb all the funding from Japanese government; this is because labour and production cost also moving northward. Some other Asian countries are also interested in making setup is other countries, followed by Japan which is keen to tap this kind of opportunity, Chuo Shinkansen rail project is one of the example which is being started to establish in India. The Nihonjins (Japanese people) are desperate the achieve this project is that, they have given loan of 50 million yen to establish Chuo Shinkansen rail project, in this way, there is chances of overcome the depreciated yen value to some extent (Yoshino, 2016).
Earlier it seems that, result was good, the first quarter of economy after implementing Abenomics, there was growth of 4.1 % and rise in stock market is about 80%, but on the burden of public debt which is around 250%, but we have to see that making quantifiable easiness of public finance can last for a long time or not (Bringham, 2017).
The implementation of third arrow is not seems to be more than apparent, the infrastructure for economic policy was also not up to the required level. We can take example for employment rate. In 2016 21 % of men and 55 % of women are employed on irregular basis, which means they are either on contract, seasonal or low paid basis, Job security goes down in in last two decades and after 2013 it is worse. Policy and implementation which is facilitated as restricted access to social benefit, the further result of poor humans resources policy slowdown the productivity in Japan Industries, the Global market scenario also discouraged the Japanese companies in invest in human capital, which was an important sources of competitive advantage earlier (Greenwood, 2017).
There is no doubt that, poor macroeconomic scenario discourage industries to hire more staff as compared to fast growth scenario, especially if it a concern of full time employment. In 1997, there is only 15% of working people are under the contract Job i.e. irregular employment, but in 2015 it is increased to 39 percent, which is more than twice of 1997 date, this figure is as per report given by Japan ministry of health and labour and welfare (Hosomizu, 2016).
The shooting of third arrow policy, also named as womenomics by some critics, this is due to the reason that giving opportunity for female worker in Job, this is good for countries were female labour are less in market, but in case of Japan, there are 67% female worker are sharing their hand with male worker which is supposed to be good ratio for a developed countries, if it is increased there is chance of male will lack some opportunity in any sector. Labour market reform is good manifestation for any developed countries, but we have to careful about imbalance will not deepened by giving extra attention to any particular gender (Iacoviello, 2016).
It is a global truth that, every coin has two faces, if we only look for one side, we cannot judge properly about all of the aspects of any coin. The Abenomics is also having similar characteristics as coins, We have to look entire parameter for judging any kind of countries policies, definitely there is slow progress which is not expected but, its seems to be steady also. ‘Rome was not built in a day’. The financial reform by implementing this policy takes time, and we have to wait for some time for good result (Mandel, 2016)
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Al-Joundi, A, 2012, Detailed Look at Gold Hedging. 1(1), pp. 24-30.
Bobowski, S, 2016, Abenomics and challnges of the labour market. International Days of Statistics and Economics, 1(1), pp. 1-10.
Bringham, E, 2017, Fundamentals of Financial Management. 9e ed. Boston: Cengage Learning.
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