The objective of this report is to evaluate banking and financial activities in respect of two different organisation. This will assist in analyzing the financial instruments of the firm by considering:
- Provide an overview over share price of BHP and CBA.
- Determine Fiscal policy, monetary policy and Debt market in the context of given scenario.
Banking services is an essential aspects for both economy development and formulating nations such as Australia. There are various basic advantages of having banking services because a nation can operates effectively in case they are having an institutions that can help them to increase wealth of the country. Bank performance is expressed as appropriate reflection in the manner under which the capital of a banks can be used in a firm. However, through using bank services as a appropriate signal, the banks can attain the future aims with implementation of a various set of indicators that are having specific points out the banks present status in order to attain future aims and objectives. This project carries two parts that focuses on markets functions. The target on financial instruments of “BHP Billiton” and “commonwealth bank of Australia”. The other parts focuses on debt market and fiscal as well as monetary policy of these companies are taken into considerations (Venardos, 2012).
Q1. Current price of ordinary and common share in BHP and CBA
BHP Billiton: It is known as one of the global leading resources industry. They are engaged in extraction and process of mineral, oil and gas with total number of 60000 employees and contractor. Its products are sold international with sales and marketing led by various countries. It is running into dual listed company structure with two parent companies that are operating together for the common motive. The major purpose is to create long term shareholder value breakthrough and evolution as well as marketing of natural resources. They are following certain strategies that is to operate wide as well as long life expansion of the businesses. The current Share price of BHP Billiton is 33.96 AUD. It has been found that like other companies, BHP can be subject of false representation through an individual not associated with their country. Shareholder are advices to be very wary of any unsolicited guidelines that offers to purchase share at a discount of free company report (Richards, 2012).
CBA: The commonwealth banks of Australia is said to be multinational banks that is having appropriate banking services across the nation. It used to deliver a wide variety of financial services that consists of retail, business and financial institution banking. The commonwealth is consider to be one of the largest Australian listed company that deals in insurances, investment and broking services. It is known as a public limited services industry that is listed on ASX. The banks role in central banking is expanded gradually after 1920. As per the current facts the commonwealth banks has generated unaudited cash net profit after tax of total $2.35billion during the quarter. In their release the cash NPAT was down 2% on the basis of report which is 9% on an underlying basis (Scholes, 2015).
The current share prices of CBA is recorded with total of 70.09 AUD as on 21stmay, 2018.
Evolvement in last 5 year share prices of the above mentioned two companies
According to there financial share prices of these two companies, it has been found that commonwealth banks shares are more effective as compare to BHP (Kettell, 2011). There is continuous increase in every year. It means that market position of CBA is much more effective and strong in respect to BHP. This can easily be analyse through observing their historical data that is mentioned in the below appendix.
From the above charts, it has been indicating performance of BHP Billiton about their share prices from the last 5 years. The growth in the initial stage of performance is increasing at constant rate. In the middle stage from 2015 to 2016, it get reducing at very faster rate with only 17.8. after that again it get increasing drastically and reached to a higher level. In current period of time the value of share is around 33.94.
According to the above charts, it get started at lower rate in 2014. In 2015, it reaches to their maximum stages with 90.50 per share. After that, it again get fluctuating with lot of ups and down. It remain constant during 2016 at the average of almost 70 to 80. In 2018 the results are more adverse as it get more reduce to less than 70 per share.
Q2. Systematic and unsystematic risk affects on BHP and CBA
Financial risk is said to be an essential types of risk that are related with financing of various activities of an organisation. An investors can also used to purchase capital through using margin (Hensman and Sadler-Smith, 2011). Or it can directly or indirectly associated with repo rate and derivative instruments. There are two types of risk that are associated with the company. Some of them are:
Systematic risk is said to be market risk which is uncertainty inherent to global market or segment. It consists of day to day fluctuations in stock prices of an organisation. It is used to measure of risk that is associated with behaviour of investment rather than the reason for their attitude. The biggest risk determine in case of “BHP Billiton” is associated with Falling Chinese demand that is have become an important source of international demand for commodities. In 2011, notes BHP Billiton, this would represented 61% of international seaborne iron ore requirements. 39% of copper demand while rest 40 percent of nickel requirements. It can lead to slow economy growth that could be results in minimum prices and demand for their products and negative implication on overall performance of an organisation (Hall, 2012).
In case of commonwealth banks, the prudential regulator has slammed the commonwealth banks owners, senior management and culture in scathing a well effective report that lambaste the banks for their general satisfaction, unreasonable complexity and other related aspects. As per the APRA report, commonwealth bank hits with total $1billion capital charges during the an accounting period of time.
Unsystematic Risk: These are said to be specific risks that can be diversifier in any kind of situations. It is a types of uncertainty that comes with any company or sectors in which an investors used to make investments. This can be overcome through proper diversification. Such as, a news that is specific to BHP Billiton number of stock, such as sudden strike by the staffs and employees of a company owner have share in, is appreciable to be unsystematic risk.
While common banks has release a news with detail of various serious cases of systemic issues within the business that have cost clients and staffs million dollars. The following demand from RBA governor Philip Lowe, greater transparency. CBA release that a list of problems which says that putting right for their customers and staffs is primary motive. The issues consists of selling lines of insurances that could not be paid out over an insurances that will be paid out over insurances for there home loan customer and defrayal to employees (Dixon, 2012). The CBA also added a new products to their list that confirming that, it had just inform that ASIC that is cannot have cancelled insurances to various deceased nations.
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