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1、ContentIntroduction1Method and Concepts1Discussing1Foreign exchange rate2Raising money2Financial management problem3Overview of Cathay Pacific3Analysis and Solution4Foreign exchange rate4Raising money7Financial management problem8Diagram Survey10Summary10Advice and strategies10Advice10Strategies11De
2、velopment and the Future11Conclusion12Reference13Introduction In my essay, we can know the general situation of the Cathay Pacific Airlines Limited. It is the typical example for us to understand the International Business concept and how to study the International Business.It mainly expounds the ba
3、ckground of the Cathay Pacific, the problems, and the challenge facing the Cathay Pacific and how to solve them. That sums it up three main problems: Multiple currencies; Finding low cost of capital for investment; Managing expense. I put it as classified as three methods: foreign exchange rate prob
4、lem; raising money and the financial management problems. Then I analyze the case and make the development strategy as the manager of the Cathay Pacific. The following is the main content.Method and ConceptsInternational BusinessInternational service tradeForeign exchange rate problemRaising moneyFi
5、nancial management problemSWOP analysisCore competenciesThe cost management.DiscussingForeign exchange rate:1. How to deal with that different countries customers purchase airline tickets in different currencies.2. How to pay the ground services in different locations in different currencies.3. How
6、to handle the risk of floating exchange rate.Raising money:How to raise money for purchasing aircraft.Financial management problem:1. What financial strategies should be developed for the firm.2. The Cathay Pacific might face what types of financial exposure.3. What challenges does Cathay Pacific fa
7、ce as it manages its financial holdings.Overview of Cathay PacificAs we know, Cathay Pacific is Hong Kongs most major airlines, with its head office and main hub located at Hong Kong International Airport. The main business are regular aviation business, aviation diet, aircraft processing and aircra
8、ft engineering. Cathay Pacific airways is Hong Kongs first airline company that provide the civil aviation services . It services to 114 destinations in 36 countries worldwide.It base on Dragonair, operates to 29 destinations in the Asia-Pacific region from Hong Kong.The airline was founded on 24 Se
9、ptember 1946 by American Roy C. Farrell and Australian Sydney H. de Kantzow, with each man putting up HK$1 to register the airline. as of October 2009, its major shareholders are Swire Pacific and Air China. It is reciprocally one of the major shareholders of Air China. Cathay Pacific currently hold
10、s the title of the worlds third largest airline, measured in terms of market capitalization, according to the International Air Transport Association. In 2010, Cathay Pacific became the worlds largest international cargo airline, along with main hub Hong Kong International Airport as the worlds busi
11、est airport in terms of cargo traffic. Cathay Pacific is a founding member of the Oneworld alliance, with its subsidiary, Dragonair, as an affiliate member. (online) In a certain sense, the Cathay Pacific is a MNC .So a series of problems occurred under the present situation.Analysis and SolutionThe
12、 entire problem belongs to the International Business category.”International Business consists of business transactions between parties from more than one country.”(Ricky W.Griffin &Michael W.Pustay.2010 P29).Foreign exchange rateAnalysisForeign exchange rate consists of currencies issued by countr
13、ies other than ones own. As we know, there are some factors affect the foreign exchange rate: Supply and demand of foreign exchange. The economic elements that impact the supply and demand were market price level，cost of goods sold, the supply of money, short-term exchange rate and the balance of pa
14、yments.The international trade of supply and demand structure changes. In this kind of situation, the only reason for the change of the foreign exchange rate is the consumer demand.The change of government policies and measures. Usually for tariff, import quotas and other trade intervention means.Th
15、e prediction of the foreign exchange rate is necessary: a) Foreign exchange risk influence the types of transactions. b) Foreign exchange impacts the parent company and subsidiary company. c) Foreign exchange rate impact the management of the multinational corporation. d) Foreign exchange rate chang
16、e the company management functions, including the production, sales, finance and the human resource management. After some consideration，we make a conclusion that four types of the risk: Transaction Exposure, After the change of the rate, the company should clear the debt ;Translation Exposure. The
17、account of assets and liabilities should be showed through the local currencies; Economic Exposure. Predict the change rate for the company and evaluate the influence of the cash flow; Taxation Exposure. Fluctuations of exchange rate affect the companys income tax. Reduce the tax burden when the for
18、eign exchange loss occured, and increase the tax burden when the foreign currency appreciated.Direct at problem, I set up the method of management. Adjust business strategy and strengthen the management of foreign exchange risk. It shows two aspects: Long-term capital risk management and the daily c
19、apital risk management.The purpose of the long-term management is the maximum of the company assets, business operation and the shareholders interests. So predict the limits of the change and take the measure, cover expected risk, nip in the bud.The purpose of the daily risk management is reducing t
20、he transaction and the convert exposure caused the risk in daily business activities. In order to maximize the dividend after the tax.International service trade includes: Cross Border Supply, Consumption Aboard, Movement of Personnel and Commercial Presence (Chen Tongchou.1995.P38)SolutionFor the f
21、irst problem-different currencies pay for the tickets. Before the payment, we should give the hint to customers that which currency to use for aircraft tickets transaction. In this way, the customers from all over the world will prepare the right.It will avoid a lot of unnecessary trouble.In the tra
22、nsaction, 1.The customers can use the credit card. This is a non-cash transactions, the Cathay Pacofoc will not face the exchange the customers own currencies to HK $. Certainly you should check the credit of the customers who want to buy the ticket.2. Online payment. Most of the people use the onli
23、ne banking. Its the most convenient way of payment. Then the foreign exchange risk will put questions to the bank to deal with.As for the bank ,always have the solution to hedge against the risk. 3. Coorperate with a local bank and set the bank at the airport. In this way, customers can change the c
24、urrencies to any other kind of currencies. They will use the local currencies to buy tickets. For the second problem-different currencies pay for the local ground services.In addition to the regular aviation business, the company and its subsidiaries offer the other relevant business, including avia
25、tion diet, aircraft processing and aircraft engineering. Cathay Pacific inventory actually including the plane seat, restaurant, hotel housing, etc.So the Cathay Pacific will meet a series of problems inevitable. This is also the foreign exchange risk. Different kinds of services will need different
26、 kinds of currencies. In order to hedge the risk, Cathay Pacific have to take measure such as change the currencies to their own currencies or prepare many different currencies. For the third problem-handle the risk of foreign exchange. Cathay Pacific manages flight activities at home and abroad, so
27、 the company will use many currencies .Therefore, the management of the foreign exchange risk is of crucial importance.1. Adjust business strategy. Lin Kang et al. (2000) have proposed that under the change of exchange rate,”through the combination of currency diversification, adjust different monet
28、ary value to avoid or reduce the risk” (p.313).2. Strengthen the management of foreign exchange risk. Usually there are three ways: Hedging, Leads and lags, Swap.The two ways are the essential important link. Cathay Pacific should turn to enhance these two factors.Raising moneyAnalysisCompany mainly
29、 has two aspects of operation. Internal expansion and the external expansion. Through the internal capital accumulation,invest new subject and the project is the internal expansion. Through the merger, acquisition, joint, expand the scope of operation is the external expansion. International compani
30、es always use the combination of the two ways to operate the company. Until developed to a certain stage, the external economic environment will be benefit for the management; they will make the external expansion through the assets operation make the enterprise develop rapidly.Generally, public com
31、pany raises money through two ways: direct financing and indirect financing.Direct financing includes: Initial Public Offerings, issue additional stock, corporate bonds, turn debt, separate transactions convertible bonds, financial claim, etc.Indirect financing includes: loan from bank and other fin
32、ancial institution, borrow money from individual or other institution.Solution As for Cathay Pacific, we should reconsider the capital source. First, raising capital from the group of internal. The main forms: Parent firm offer the loan for subsidiary. The loan could be many formats, such as money o
33、r goods, facility, raw material service, etc. Cathay has lots of subsidiary, the parent firm can offer the capital for their subsidiary. It is the effective way to reduce tax; Parent firm could buy securities to ensure the ownership and the right of the control.Second, the capital from host country.
34、 When the capital isnt enough for the operation, the host country of the subsidiary can afford the money.Third, the capital from the international society. Borrow money from any other country or international capital market and financial institution. As for the term of financing is different, we can
35、 separate it into three ways of raising money: long-term raising money, medium-term raising money and short-term raising money. Long-term: Issue stock funds, issue corporate bonds and long-term loan. Medium-term: medium-term loan, export credit and the international leasing finance. Yang Deqing (199
36、1) .et al, for example, points out that “there are lots of leasing business, such as operating lease, financial lease, maintenance lease, leverage lease ,sale and lease back and so on”(p281).Short-term: short-term loan.A recent study (Luo Haitao.2012) shows that, “the Hong Kong and mainland loan int
37、erest rate is different; funds began to flow in two districts” (C20).So make the loan in mainland is a very sensible way to raise money.Financial management problemAnalysisWe can use the SWOT analysis. The SWOT is the external analysis and the internal analysis.S is for strengths: any activities the
38、 organization does well or any unique resources that it has.W is for weakness: activities the organization does not do well or resources it needs but does not possess.O is for opportunities: positive trends in external environmental factors.T is for threats: negative trends in external environmental
39、 factors. Based on the SWOT analysis ,”managers can identify a strategic niche that the organization might exploit”, Stephen Robbins(2006) said. This method can help us to know the core competencies, the organsations major value-creating skills, capabilities and resources that determine its competit
40、ive weapons.In the current social background ,we should consider the advantages and disadvantages of the Cathay Pacific development.Solution First we analyze the SWOT of the Cathay Pacific. From the case we can know that the two shareholder of Cathay Pacific is Swire Group and the CNAC. Swire Group
41、is a real estate agency .CNAC is the biggest aviation corporation of China. These two company is the strong backing of capital, its the strength. But the company will face the financial risk. Management expense, Cathay Pacific invested in aircraft maintenance facilities in China and encouraged its c
42、ockpit crews to reside on their home countries to avoid the hefty cost-of-living fringe benefits they receive in Hong Kong. It is the weakness. We all know that the financial crisis occurred at 2008, though it isnt happened in China, the market of financial has been involved. So the Cathay Pacific c
43、ant avoid it. In the current, under the influence of the world financial crisis, countries strive to open up the domestic market, restrain import demand, in order to obtain Chinas foreign trade long-term balance development, we must change the trade structure. (Bi Yujiang.2010) So the financial cris
44、is is the threats for the Cathay Pacific. To illustrate the importance of this point, Cathay Pacific had to undertake a major financial reorganization. And the Cathay Pacific also has the opportunities. The Chinese government had threatened to set up a rival airline to Cathay Pacific in Hong Kong, u
45、nder the auspices of Chinese government controlled. In my point of view the Chinese government should increase the support to Cathay Pacific. If the occasion should arise,it can expand the market and joint ownership. Philip Kotler.(2008) et al, think that “the firm may lack the financial, physical o
46、r managerial resource to undertake the venture alone”. Or a foreign government may require joint ownership as a condition for entry.Diagram surveyThe demand of Cathay PacificLoad Factors of Cathay Pacific in 2010 each month (online)MonthLoad FactorsMonthLoad FactorsJan.83.8%Jul.89%Feb.84.1%Aug.84.4%Mar.85.7%Sep.81.8%Apr.83.9%Oct.83.2%May.81.3%Nov.80.5%Jun.85.4%Dec.80.1%SummaryFrom the table data we can see that , in the summer tourist season, Catha
