BACC221/BUS301/HMD304 Assignment InformationSemester 2, 2017 YEAR: 2017 ...

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BACC221/BUS301/HMD304 Assignment Information
Semester 2, 2017

YEAR:	2017
SEMESTER:	2
SUBJECT:	Business Finance
CONTRIBUTION TO OVERALL ASSESSMENT:	This assignment is worth 20% of the overall assessment.
DUE DATE;	This assignment is due by 5pm, Thursday 5^th October 2017
PARTICIPATION AND SUBMISSION REQUIREMENTS:	This is a Group (Maximum 2 students) assignment. All assignments must be submitted on Moodle with an assignment cover sheet attached, indicating group members’ details. You MUST rename your file name as ‘student no._name’ (eg. 1234567_John_Doe), otherwise, your assignment will not be marked. Do not submit your assignment via email, or to your teacher. Prior to submission of your assignment you will be required to check for authenticity and originality using the “Turnitin” facility Submission of Late Assignments A penalty of 10% of total marks per day will be applied where assignments are submitted after the due date UNLESS a request in writing has been submitted by the due date together with relevant documentation including a medical certificate where appropriate.
PLAGIARISM AND OTHER COMPLANCE ISSUES:	Plagiarism is the inclusion of another person’s work within your submission without acknowledgment or permission. While limited amounts of information and concepts expressed by others may be included as part of your work, each inclusion must be identified by appropriate referencing and acknowledgement to the original author. Plagiarism is regarded as a form of cheating, The penalties associated with misconduct are severe, and plagiarism may result in failure or variation of grade in the unit. For more information on the rights and responsibilities of students, grievance and appeal procedures see P/HE/D/3/050 Higher Education Student Academic Integrity Policy http://www.melbournepolytechnic.edu.au/wp-content/uploads/2013/05/phed3050.pdf
ASSESSOR(S);	Sazali Zainudin

30 marks to be pro-rated to 20%
Due 5pm, Thursday 5^th October 2017
2,500 words Venezuela's worst economic crisis: What went wrong?
http://www.aljazeera.com/indepth/features/2017/05/venezuela-worst-economic-crisis-wrong XXXXXXXXXXhtml
Excerpt
“……………Venezuela is experiencing the worst economic crisis in its history, with an inflation rate of over 400 percent and a volatile exchange rate. Heavily in debt and with inflation soaring, its people continue to take to the streets in protest.
President Nicolas Maduro announced the highest increasein the minimum wageordered by him- 65 percent of the monthly income, and recently announced the creation of a new popular assembly with the ability to re-write the constitution.
International concern raised, with Chile and Argentina among the countries expressing worry. The Venezuelan opposition says the move further weakens the chances of holding a vote to remove Maduro but backing has come from regional leftist allies including Cuba. Bolivia's President Evo Morales said Venezuela had the right to "decide its future... without external intervention."
The country sits on the world's largest oil reserves, but, over the past decade, it has been the region's poorest performer in terms of growth of GDP per capita. Since 2014, the government has not made any economic data available making it difficult to track ………”
Questions

Elaborate on four main reasons that had lead to Venezuela into its current state of unrest today. [8 marks]

You are an Australian based pharmaceutical company that has a subsidiary in Venezuela. The subsidiary was funded by the parent company in Australia through 50% debt and 50% equity. Based on the situation with the Venezuelan Bolivar, what will likely happen to the subsidiary? What will happen to the parties that provide the capital for the subsidiary?

[8 marks]

With the decreasing confidence in the local currency, what alternative currency(s) has some Venezuelans resorted to? Explain its usage and the related pros and cons. [8 marks]

Explain how financial management decisions and goals in a country like Venezuela can be affected by the usage of cryptocurrency? [6 marks]

Note :
You are expected to apply, as much as possible, what you have learned in this unit into the assignment.

005_yoj9a5o-ofqzstdv.docx

Robert · Accepted Answer

ANS 1. There is a worst economic crisis in the history of Venezuela economy. The exchange 
rates are highly volatile and the inflation rates are raised up to 400 percent.  Economy is 
overburden by debt and citizens continue to protest in streets. There are very high instability in 
political environment. 
As a corrective action “President Nicolas Maduro” increased the minimum wages by 65% for the 
monthly income and also announces to create a new assembly and rewrite the existing 
constitution.  
Now concern raised internationally, Neighbour countries also concerning with the present 
condition in Venezuela. The opposition in Venezuela is demanding to expel the president 
Maduro. Venezuela has one of the biggest oil reserves in the world but still GDP and per capita 
income is one of the poor performers. And after 2014 government is not publishing any 
economic data, so it’s hard to predict about economy. 
The four main reasons for this are:  
Oil Price Dip: Oil revenue is the main part of Venezuela's economy. The oil prices are in 
pressure not even now but also under former President Hugo Chavez. When the oil prices are 
around $100 or more than that, billions of dollars spent by public-sector Petroleum Corporation 
and were tapped off for societal packages and food subsidies. But when the prices fall for crude, 
those huge subsidies became unmanageable. As there are price fall for oil, the foreign reserve is 
also goes down. Because of this import go down by approx. 50% (“according to Ecoanalitica, a 
national research firm”) and Venezuela government unable to by the essential product such as 
vital medicine and food items.  The government owned PDVSA is about to default to its bond 
holder and the companies which are help PDVSA in oil digging are move aside as PDVSA is not 
paying their bills. 
Recession and High Inflation in Economy: In the era of President Chavez, the prices of 
essential goods were reduced so that everyone could buy them.  If we look in to the economic 
production of, the endorsed price for a bag of corn flour, which is used to cook the national dish 
“Arepas”, is 639 Bolivars.  It is the price which is affordable to many of the people. But this is 
the price which is lower than the cost of production due to this, Domestic manufacturers having 
shut down the production of corn flour. Form last 3 years, Venezuela is in recession. As per the 
IMF forecast, Venezuela will be in recession at least till 2019. The currency of Venezuela is also 
falls from 100 Boliver/Dollar to 1262 Boliver/Dollar in just two years.
Food Crises and Low supply of Essential Goods:  As the foreign reserve reduces, there are 
reductions in importing the essential goods. These essential goods are food items and medicine. 
Not even imported goods impacted but domestic goods supply is also reduced or prices rise 
sharply for domestic good. It makes these normal goods such as milk, bread, soap, toilet paper 
etc. out of reach from the common citizens. An inflation rate raises more than 400%. 
High price rises(Inflation) has meant more people are skipping regular food, people are getting 
malnourished in Venezuela. There are Sharpe increases in malnourished Venezuelans. Below 
image shows the percentage increase in malnourishment in Venezuela:
High Trade Deficit and Reduction In Foreign Reserve:  Venezuela has an amount of $10 
billion (approx.) reserve by the year 2017 as data published in July by Central Bank of 
Venezuela.  By CNN money, there are only $10.5 billion reserve is left for rest of the year and 
country also has to pay $5 billion foreign debt as well. Venezuela has 20 years lowest foreign 
reserve. China who lands a billions of dollar are now stopped financing. Below chart from 
central bank of Venezuela
The impacts of the country’s problems are all too obvious to most Venezuelans.  
 There are shortages food and essential goods such as bread, milk and corn flour etc. 
 Less supplies and reserve of vital medicine 
 Less electricity and blackout raise 
 Unemployment raises in the nation  
 Rising intense crime  
 The diseases like malaria is also rising
Solution 2. If we focused on the present condition of Venezuela, the inflation has to 2400% in 
September and currency is so devalued that people are unable to buy the essential goods for 
living. Currency hugely depreciated. If we see the data American companies earning in 
Venezuela is badly hurt. Venezuela currency crisis hit the businesses deeply. According to 
Reuters New York, Venezuela business are nothing or next to nothing and on one-time write-off 
gives a huge loss the parent companies. 
In present scenario, U.S. company start writing off their Venezuela assets. One of the car 
manufacturer giant Ford Motor, write off its all investment in Venezuela. It is cost to Ford 
Motors around $800 million as pretax basis (Reuters). For this Ford Motors says that they don’t 
want any further impairment charge for their Venezuelan subsidiary.

BACC221/BUS301/HMD304 Assignment Information Semester 2, 2017 YEAR: 2017 SEMESTER: 2 SUBJECT: Business Finance CONTRIBUTION TO OVERALL ASSESSMENT: This assignment is worth 20% of the overall...

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