Executive Summary

This document can be described as a brief report on the assessment about whether to
take the action of hedging or not. The background set in a international trade practice,
which demonstrated by a case of exporting the dictionaries and calenders from Australia to
Malaysia, and it aimed to show that if the behavior of management of the exchange risk
matter in international trade. The context area would mainly divided into two parts: In part
one, some basic data searched from Australia & New Zealand Banking Group Limited
( ANZ Bank below ) will be shown and some relevant data and simple calculation would
also be done in this part. The details about the cash conditions and the formal documented
materials of the whole trading process of the case are displayed in the second part and
more calculation and analysis are given in this section.

1
1.0 Introduction

1.1 Background

Superex Pty Ltd is an Australian company which has decided that it will begin exporting
to Malaysia, which took the benefits of preferential duty treatment for Australian goods
under the Malaysia-Australia Free Trade Agreement ( MAFTA ). However, even the macro
environment for trading between both two countries get better and better, the risk always
exists; for instance, the risk of goods itself during the transportation as well as the exchange
rate risk. The goods contained Australian dictionaries and calenders. The detail size is
shown below.

1.2 Objective

The objective of the whole process is to make the assessment and measurement of the
whole trade practice and find the optimal plan to smooth the completed processes. The
goal contains find the best way to hedge the exchange rate risk and selection of the way
through which it would conveyed as well as some issues about paper work.

1.3 Scope

The scope of the contents is limited to the international trade conditions between the
two countries as well as some financial issues during the international trade.

2.0 Specific Research

2.1 Part One

2
2.1.1 Spot Rate Data

(Source: Foreign exchange rate-Australia, ANZ, in 7th September 2015)

(Source: Foreign exchange rate-Australia, ANZ, in 5th October 2015)

Spot rate refers to the rate used for accelerate currency transformation and
international trade. From the ANZ official publication above, the spot rate (USD/AUD) is
0.7184 USD/AUD on 7th September 2015 and 0.7345 USD/AUD on 5th October 2015. At the
same time, Superex sells and bank buys.

2.1.2 Forward Exchange rate

(Source: Forward Rates, The Forex Market website)

Forward exchange rate refers to a guaranteed agreement of exchange currency will be

3
executed in the specific future which get consent of two parties. In this situation, it can be
seen that there is a premium in the bid value (-0.0783=1/-12.7800). Therefore, the one-
month forward exchange rate is 0.7184 - 0.0783= 0.6401 USD/AUD. This means that in
one month, the AUD will be “appreciated” relative to the USD. Under the reason that the
fluctuation of the foreign exchange, Superex Pty Ltd need to enter into a forward contract
so that the risk can be avoided and the exposure to the negative variation will decrease to
minimum level. In other words, our profit from trading can be maintained in a stable and
warranted standard.

2.2 Part Two

4
2.2.1 Transport Method

From the custom of transportation, people get used to choose the sea transport for a

large amount and cumbersome cargo that are not value high and demand in a hurry, for

example common clothes、petty commodities. At the same time, air transport is suitable for

the expensive、delicate and sophisticated cargo that requiring speediness to transfer, such

as chip 、 smart-phone. However, there are other considerations is contributing to the final

decision, for example the urgency of the cargo demand 、 the cost of shipment 、 the

convenience of access to the unloading place. Therefore, it cannot decide the optimal way

by the first impression. Here are the calculation process:

Sea Transport
Exchange rate (07/09/2015) 0.7184 USD/AUD
Sea Freight USD 825
Cartage to Wharf AUD 215 * 0.7184 USD/AUD=USD 154.456
Documentation AUD 305 * 0.7184 USD/AUD=USD 219.112
Sea freight + Cartage to wharf +
Total cost of sea transport
Documentation fees=USD 1,198.568

Air Transport
Exchange rate (07/09/2015) 0.7184 USD/AUD
AUD 1855 * 0.7184 USD/AUD=USD
Air Freight
1,332.632
Cartage to Airport AUD 165 * 0.7184 USD/AUD=USD 118.536
Documentation AUD 205 * 0.7184 USD/AUD=USD 147.272
Air freight + Cartage to airport +
Total cost of air transport
Documentation fees=USD 1,598.44

From the above outcome, it can be concluded that sea transport is the lowest option of
carriage. It shows the total cost of sea freight is USD1,198.568, and the air freight is USD
1,598.44. However, even if the sea transport costs less money than air transport, air
transformation is company’s final decision under the reason that the airfreight be
broken into

5
 two part that Flight SQ 321 Melbourne-Singapore and SQ 850 Singapore- Kuala Lumpur.
What is mean that the airfreight can transfer the products to the destination while the sea
freight cannot. Therefore, Superex’s goods like dictionary and calendar are fit for airfreight.

2.2.2 Total valuation of exporting and insurance

Product Price Box quantity Total price

(USD)
Code EDS AUD 5.65* 0.7184 USD/AUD=USD 4.06 10,000 40,600
Code ACD AUD 3.75* 0.7184 USD/AUD=USD 2.69 5,000 13,450
Sum USD 54,050
So, from the insurance policy requirement the premium will be:

Insurance charges
FCA Invoice Value USD 54,050
CPT Invoice Value Airfreight+FCA Value=USD 1,598.44+ USD 54,050 = USD 55,648.44
(CPT invoice value*110%)*0.3% = USD 55,648.44 *110% * 0.3% =
Premium
USD 182.639852
Therefore, we can know that:
Week 2 date Week 6 date Forward rate
Spot rate 0.7184 USD/AUD 0.7345 USD/AUD 0.6401 USD/AUD
Amount receivable in AUD equivalent AUD 75,236.637 AUD 73,587.4745 AUD 84,439.9313

 Spot rate on 7th September 2015 was 0.7184 USD/AUD

Total money received in AUD: USD 54,050/ 0.7184 USD/AUD= AUD 75,236.637
 Spot rate on 5th October 2015 was 0.7345 USD/AUD
Total money received in AUD: USD 54,050/ 0.7345 USD/AUD= AUD 73,587.4745
 Spot rate on forward contract: 0.6401 USD/AUD
Total money received in AUD: USD 54,050/ 0.6401 USD/AUD=AUD 84,439.9313

6
From the data comparison above, it illustrates that the largest amount receivable in AUD
equivalent is AUD 84,439.9313 by buying forward exchange contract. Hence, we need to
sign a forward contract with Australia & New Zealand Banking Group Limited (ANZ Bank) in
week 2, then the direct payment in USD can be transferred into AUD through forward.

2.2.3 The effects of the exchange rate movement

USD will be depreciated relative to the AUD. From the ANZ official publication above,
the spot rate (USD/AUD) is 0.7184 USD/AUD on 7th September 2015 and 0.7345
USD/AUD on 5th October 2015. There is around 2.2% rate of depreciation. Although the
change is little, the profit we can gain is much more. Thus, the movement of exchange rate
seems like the influence of leverage as the effect on the total amount of money is
considerable.

For instance, when AUD depreciates, the foreign demand for Australian products will
increase because of the cheaper price, so that it will benefit to the export of Australian
products. If AUD appreciates, it will benefit for the Australian import of foreign products. In
addition, Superex will lose money when it converts the USD from the importer into the AUD
if AUD is appreciated after 30 days. Therefore, as an exporter, when USD depreciates, we
can gain less money in AUD from the importer through the exchange rate market trade.

2.2.4 Appraisal of foreign exchange contract

The company can use financial derivation such as Forward, options, swap and futures
to reduce effect of exchange rate risk, because using financial derivation can fix the
exchange rate at a specific rate.

7
 The AUD value of the investment was influenced by the domestic and foreign interest

rate. The foreign exchange rate is a significant factor in international trading, because the
total amount of money converted will fluctuate drastically only due to a tiny movement of
exchange rate.

Moreover, the investors prefer the currency they expect it will appreciate in order to gain
return from it. To reduce the possibility of unfavorable value changes on foreign exchange
rate change, the investors should pay attention to the government policy and adjust the
expectation of the currency.

In this case, the one-month forward exchange rate is 0.7184 After the analysis, if the
Superex enters into the forward exchange rate contract, the total money receivable in week
6 is $157,728.707 while if Superex pick the spot rate, it can get $151,156.536. In
conclusion, having a forward contract is the best plan of Superex, which can manage the
risk efficiently.

2.2.5 About MAFTA

Malaysia-Australia Free Trade Agreement (MAFTA) was signed on 30th March 2012
between Malaysia and Australia, that means there is
a specific area for both two countries trading without
tariff and Non-tariff restrictions. (Bala & Matthew
2007) Free trade zone allows foreign ship to access
freely, foreign goods to import with duty-free, cancels
the quota control on imported goods. It is the further
extension of the free port and it is a particular

8
functional area that

country opens to the other countries. Due to canceling the tariffs and trade limit, MAFTA
attracts foreign investment to build factories, develops export processing enterprises, allows
and encourage foreign investment to set up large commercial enterprises, financial
institutions and promotes comprehensive economic and comprehensive development in the
region. Moreover, because of the improvement of the production efficiency and the increase
of accumulation of capital, import and export between Malaysia and Australia is more
convenient and more frequent, there was $18.2 billion trade amount in export and import in
the year 2013, both two countries’ economic growth speeds up. (DFAT 2014)

3.0 Conclusion

There are adequate evidence to show the effect the exchange rate risk movement on
the international trading practice; however, this can be controlled by the financial
department of the exporter; Some hedging measure can be applied in the cases. For
instance, the forward contract in the case or others like swap, future, options as well. The
action mentioned above need the focus on the trend of the exchange rate movements,
which demonstrate that the staff who work for the international trade has to prepared some
knowledge of finance as well.

What is more, the way of transportation constitute another bullet of international trading,
for different ways of transportation stands for different cost as well as the level of risk. From
the view of the exporter, it is necessary to decide the model of transportation by calculation
of the cost and some other opportunity cost at the same time.

9
Reference

Bala, R & Matthew, Y 2007, ‘Malaysia – Trade Policy Review’, The World Economy, vol. 30,
no. 8, pp. 1193–1208.

DFAT 2014, About the Malaysia-Australia Free Trade Agreement, viewed on 6th September
2014,
< http://www.dfat.gov.au/fta/mafta/ >

Foreign exchange rate-Australia 2015, ANZ, viewed 10th October 2015,

< http://www.anz.com/aus/ratefee/fxrates/fxpopup.asp>.

Forward rate 2015, The Forex Market, viewed on 10th October 2015,
< http://www.fxstreet.com/rates-charts/forward-rates/ >.

10
 APPENDIX

Documents
 Commercial Invoice

 Original Certificate

11
 Export Packing List

 Air Waybill

 Sale Contract

 Insurance Note

 Consignment Note

Commercial Invoice

EXPORTER EDN OTHER RELATIVE DETAILS

Superex Pty Ltd INVOICE NO.& DATE 2015SDT088 EXPORTERS REFERENCE

September 7, 2015 _______________

BUYERS F AGENT SS COBKG

REFERENCE Robert

Buyer if Not CONSIONEE

CONSIONEE

ImpomaSdn. Bhd.

COUNTRY AND ORIGIN & CODE COUNTRYOF

FORWARD AGENT MERCHANT Australia P. DESTINATION AND CODE

Diamond Face Malaysia E.

TERMS OF DELIVERY AND PAYMENT

CIP Kuala Lumpur, uncleared for import, all charges outside for buyer’s

VASSEL AIRCRAFT Vessel VOAGE NO. 39 account, Incoterms 2010.

Direct payment in USD 60 days from invoice date. Invoice date. Invoice and

payment will be in USD

PORT OF LOADING DATE OF DEPARTURE RECEIVING DATE DOCK COUNT BASE

Melbourne September 7, 2015 In 60 days

PORT OF DISCHARGE FINAL DESTINATION INSURED VALUE SHIPPING LINE

Kuala Lumpur Kuala Lumpur $ 61213.248

MARKS NOPKGS DISCREPTION GROSS MASS CUBIC ( /m³）

Australian Dictionary 12000 kg 0.15 x 200 = 30

Standard
Australian Calendars 2500 kg 0.2 x 50 = 10

12
 Deluxe
Total
QUANTITY PROD CODE ITEM DESCRIPTION OF GOODS UNIT PRICE TOTAL

$ $

10000 EDS Australian Dictionary Standard 4.06 40600

5000 ACD Australian Calendars Deluxe 2.69 13450

Total

FORWARD TOTAL Freight $ 1598.44

Insurance $ 182.6399

INVOICE TOTAL $ 55831.08

SIGNATORY’S COMPANY NAME OF AUTHORISED SIGNATORY

Superex Pty Ltd

PLACE AND DATE ISSUE SIGNATURE

September 7, 2015

Original Certificate
EXPORTER: CERTIFICATE No.:
Superex Pty Ltd
EXPORTERS REFERENCE

CONSIGNEE: BUYER(IF NOT CONSIGNEE)

ImpomaSdn. Bhd.

FORWARDING AGENT/MERCHANT THE STATE CHAMBER OF COMMERCE &

Diamond Face INDUSTRY (VICTORIA)

VESSEL/AIRCRAFT VOYAGE No.: Burwood Rd Hawthom

Vessel Voyage 39
PORT OF LOADING DATE OF DEPARTURE Approved and designed as an issuing authority by

Melbourne September 7, 2015 the Government of the Commonwealth of Australia

PORT OF DISCHARGE FINAL DESTINATION under the International Convention Relating to

Kuala Lumpur 56 Jalan Kampong Simplifications of Customs Formalities of 1924

MARKS, Nos, No AND CONTAINER No, No AND KIND OF PACKAGES, DECRIPTION OF GOODS
Item Code DESCRIPTION Quantity Price Per Unit $ Amount
EDS Australian Dictionary Standard 10,000 4.06 $ 40,600
ACD Australian Calendars Deluxe 5,000 2.69 $ 13,450
Total $ 54,050

13
 This certificate is based on information supplied to the designated issuing authority by the consignor
and is not to be taken as amounting to a warranty or representation of fact by the designated
authority or us servants

The undersigned, duly authorized by the

Designated Issuing Authority certifies on

the basis of information supplied and to

the best of his knowledge and belief that

the goods designated above are of

AUSTRALIAN origin, production or manufacture

PLACE AND DATE OF ISSUE SIGNATURE:

Export Packing List

EXPORTER Packing List No Page No

Superex Pty Ltd AGE56003 1 Of 1
DATE EXPORTERS REFERENCE
April 10, 2015 Superex Pty Ltd
April 11, 2015
BUYERS REFERENCE
ImpomaSdn. Bhd.
METHODS OF DISPATCH
Air Transportation
CONSIGNEE ( IF ORDER STATE NOTIFY PARTY) BUYER ( IF NOT CONSIGNEE)
Name: ImpomaSdn. Bhd.
Address: 56 Jalan Kampong, Kuala Lumpur 512345
Malaysia

FOR INTERNAL USE ONLY

PACKING LIST DETAILS

INCLUDING No OF PACKAGES DISCRIPTION OF GOODS ETC
1. The type of Packing and Color: Brown fiberboard boxes
2. Total number of Boxes in consignment: 250 Boxes
3. Individual number and contents of each box: 200 Boxes (Australian Dictionary Standard)
50 Boxes (Australian Calendars Deluxe)
4. Buffer in the box: Foam
SHIPPING MARKS AND NUMBERS NET AND GROSS MASS:
Gross Mass of Australian Dictionary Standard:

14
 12000 Kg
Gross Mass of Australian Calendars Deluxe:
2500 Kg
Total: 14500Kg
CUBIC MEASURE:
Marks: Cubic Measure of Australian Dictionary
Buyer: I.S Bhd Standard:
Item: Dictionary and Calendars 30 M3
Flight: SQ 321 Melbourne-Singapore Cubic Measure of Australian Calendars Deluxe:
SQ 850 Singapore-Kuala Lumpur 10 M3
Total: 40 M3
SIGNATORY’S NAME OF AUTHORISED SIGNATORY
COMPANY
SIGNATURE

Air Waybill

Shipper’s name and address NOT NEGOTIABLE

Superex Pty Ltd Air Waybill
36 Peter St Bigtown, Vic 3999 Australia
Tel: +61 3 9876 5432 Issued by
NO

Consignee’s name and address It is agreed that the goods described

ImponmaSdn. Bhd. herein are accepted in apparent good
56 Jalan Kampong, Kuala Lumpur 512345 order and condition (except as noted)
Malaysia for carriage SUBJECT TO THE
Tel: +60 3 987654321 CONDITIONS OF CONTRACT ON THE
REVERSE HEREOF, ALL GOODS MAY BE
CARRIED BY ANY OTHER MEANS.
Issuing Carrier’s Agent Name and City
INCLUDING ROAD OR ANY OTHER
NO
CARRIER UNLESS SPECIFIC CONTRARY
Agents IATA Code Account No.
INSTRUCTIONS ARE GIVEN HEREON BY
A WB 618-1234
THE SHIPPER. THE SHIPPER'S
8765
ATTENTION IS DRAWN TO THE NOTICE
CONCERNING CARIER'S LIMITATION OF
LIABILITY.
Shipper may increase such limitation
of liability by declaring a higher value
of carriage and paying a supplemental

15
 charge if required.
Airport of Departure (Add. Of First Carrier) Accounting Information
and Requested Routing
MELBOURNE, AUSTRALIA FREIGHT COLLECT
To By First To By To By Currency Declared Declared
Carrier Value for Value for
Carriage Customs
SIN MEL KE SIN USD NVD NCV

Airport of Flight/Date Amount of INSURANCE-If carrier offers

Destination Insurance insurance and such insurance is
KUALA SQ321/10 SEP USD61,223.84 requested in accordance with the
LUMPUR, SQ850/11SEP conditions thereof indicate amount
MALAYSIA to be insured in figures in box
marked"Amount of Insurance
Handling Information

No. of Gross Rate Chargeable Rate/Charge Total Nature and

Pieces(RCP) Weight Class Weight Quantity of
Rate (KG) Goods
Combinatio
n Point
12,000 AS Dictionary
2,500 ARRANGED Standard 0.15m³
Calendars Deluxe
0.20m³
Prepaid Weight Charge Collect Other Charges
AS ARRANGED
Valuation Charge

Tax

Total Other Charges Due Agent Shipper certifies that the particulars on
the face hereof are correct and that
Total Other Charges Due Carrier insofar as any part of the consignment
contains dangerous goods, such part is

16
 properly described by name and is in
proper condition for carriage by air
according to the applicable Dangerous
Goods Regulations.
________________________________
Signature of Shipper or his agent

Total Prepaid Total Collect SEP. 10,2015 MELBOURNEKEWQAO

AS ARRANGED Executed on____ at_____ Signature of
Currency Conversion Rates CC Charges in des. issuing
Currency Carrier or as Agent

For Carrier’s Use Only at Charges at Destination Total Collect Charges AIR
Destination WAYBILL
NUMBER
MEL-
51000788

Sale Contract

SALES CONTRACT
SELLER: Superex Pty Ltd NO.: NEO2015/036

36 Peter St, Bigtown, Vic 3999 Australia DATE: September 7, 2015

Tel: +61 3 9876 5432 SIGNED IN: Bigtown, Vic 3999 Australia

BUYER: ImpomaSdn. Bhd.

56 Jalan Kampong, Kuala Lumpur 512345

Malaysia Tel: +60 3 987654321

This contract Is made by and agreed between the BUYER and SELLER , in accordance with the terms and
conditions stipulated below.
3. Unit Price & Trade
1. Commodity & Specification 2. Quantity 4. Amount
Terms
Australian Dictionary Standard 10,000 USD 4.06 USD 40,600

Australian Calendars Deluxe 5,000 USD 2.69 USD 13,450

Total: 15,000 USD 54,050

With 5% More or less of shipment allowed at the sellers’ option

5. Total Value USD 54,050

17
6. Packing Brown fiberboard boxes

7. Shipping Marks Buyer: I.S Bhd

Item: Dictionary and Calendars

Flight: SQ 321 and SQ 850

CTN 1-20: 250 boxes in sum

8. Time of Shipment & means of In 60 days, By AIR Transport

Transportation
9. Port of Loading & Destination From : Melbourne, Australia To : Kuala Lumpur, Malaysia

10. Insurance TO BE COVERED BY SELLER AGAINST WPA AND WAR RISKS FOR 110% OF THE
INVOICE VALUE AS PER THE RELEVANT OCEAN MARINE CARGO OF PICC DATED
September 7, 2015
11. Terms of Direct Payment in USD 60 days after date of invoice at beneficiary's account.
Payment
12.Remarks 1) Transshipment prohibited, Partial shipment prohibited.

2) Shipment terms will be fulfilled according to the L/C finally.

The Buyer The Seller

ImpomaSdn. Bhd. Superex Pty Ltd

Insurance Note

The AXA Insurance Company of Melbourne，VIC Australia

CARGO TRANSPORTATION INSURANCE POLICY

INVOICE NO. 2015STD088

CONTRACT NO. NEO2015/036 POLICY NO DE8637
INSURED：ImpomaSdn. Bhd. 56 Jalan Kampong, Kuala Lumpur 512345 Malaysia
THIS POLICY OF INSURANCE WITNESSES THAT THE AXA PEOPLE'S INSURANCE COMPANY OF MELBOURNE （HEREINAFTER CALLED “THE

COMPANY” ） AT THE REQUEST OF INSURED AND IN CONSIDERATION OF THE AGREED PREMIUM PAID TO THE COMPANY BY THE

INSURED UNDERTAKES TO INSURE THE UNDERMENTIONED GOODS IN TRANSPORTATION SUBJECT TO THE CONDITIONS OF THIS POLICY

AS PER THE CLAUSES PRINTED OVERLEAF AND OTHER SPECIAL CLAUSES ATTACHED HEREON

MARKS & NOS. QUANTITY DESCRIPTION OF GOODS AMOUNT INSURED

10,000 Australian Dictionary Standard USD 40,600

5,000 Australian Calendars Deluxe USD 13,450

TOTAL AMOUNT INSURED： SAY US USD 182.320274 ONLY

PREMIUM (OR USD 182.320274 AS ARRANGED) DATE OF COMMENCEMENT SEP. 7, 2015 CONVEYANCE AIR FLIGHT

18
SQ V.095K
FROM MELBOURNE TO KUALA LUMPUR
CONDITIONS ： WPA AND WAR RISKS FOR 110% OF THE INVOICE VALUE AS PER THE RELEVANT OCEAN
MARINE CARGO OF PICC DATED SEP. 7, 2015
IN THE EVENT OF LOSS DAMAGE WHICH MAY RESULT IN A CLAIM UNDER THIS POLICY ， IMMEDIATE NOTICE
MUST BE GIVEN TO THE COMPANY AGENT AS MENTIONED HEREUNDER CLAIMS IF ANY ， ONE OF THE ORIGINAL
POLICY WHICH HAS BEEN ISSUED IN TWO ORIGINAL TOGETHER WITH RELEVANT DOCUMENTS SHALL BE
SURRENDERED TO THE COMPANY IF THE ORIGINAL POLICY HAS BEEN ACCOMPLISHED， THE OTHERS TO BE VOID
.
CLAIM PAYABLE AT ImpomaSdn. Bhd.
ISSUING DATE 28th，SEP，2015

Insurance Standard Agent:

Risk Superior:

The AXA Insurance Company of Melbourne，VIC Australia

Consignment Note

CONSIGNMENT NOTE

DEAR SIR，
WE ARE PLEASED TO INFORM YOUR ESTEEMED COMPANY THAT THE FOLLOWING MENTIONED
GOODS WILL BE SHIPPED OUT ON THE SEP 7, 2015，FULL DETAILS WERE SHOWN AS FOLLOWS：
1． INVOICE： 2015SDT088
2． BILL OF LADING NUMBER： 37845
3． FLIGHT VESSEL： DIAMOND FACE V.095k
4． ORGIN OF LOADING： MELBOURNE
5． DATE OF SHIPMENT： SEP. 7, 2015
6． PLACE OF DESTINATION: KUALA LUMPUR
7． ESTIMATED DATE OF ARRIVAL: IN 60 DAYS
8． DESCRIPTION OF PACKAGES AND GOODS: Australian Dictionary Standard
Australian Calendars Deluxe
9. MARKS AND NUMBER ON B/L:

19
 Marks:
Buyer: I.S Bhd
Item: Dictionary and Calendars
Flight: SQ 321 and SQ 850
CTN 1-20: 250 boxes in sum

10. CONTAINER/SEAL NUMBER: CODE EDS/HSP2221

CODE ACD/HSP2222

WE WILL FAX THE ORIGINAL BILL OF LADING TO YOUR COMPANY UPON RECEIPT OF IT FROM
SHIPPING COMPANY.

BEST REGARDS,

SUPEREX PTY LTD

20