Zhuldyz Zholymberdieva

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Course: International Financial Management
Instructor: Muhammad Arslan
Student’s name: Zholymberdieva Zhuldyz
Student’s ID: 20160431	Comment by Anonymous: No proper title page. No table of contents
Final Project
Theme: Diamond Sky LLP
Abstract
Diamond Sky LLP is going to operate as a multinational company in the Republic of Kazakhstan and the United Arabian Emirates. The major business activity of the enterprise is a production of clothes for Muslim women in Kazakhstan and the following realisation of the final product in the Arabian Emirates. At the moment there are no any restricting bans for export activities between these two countries, so there is a freedom to promote the fashion line for Muslim female consumers without economic barriers. It is necessary to highlight a high demand for such type of clothes as outfits for Muslim women as not so many brands produce and retail it due to a focus on more fashionable items. Considering that there are not so many Muslims, the major concentration of the famous fashion houses concerns regular types of customers. 
The project includes a detailed analysis of the foreign market’s currency and the major trends, influencing on the future success of the company. These forecasts are crucial for the upholding better management, taking into account the fluctuation of the world economics and the country where the export of the fashion items is going to be launched. 
Two currencies were taken for investigation and relevance to each other in terms of export approaches, such as KZT (Kazakhstani Tenge) and AED (Arabian Emirates Dirham). 	Comment by Anonymous: Good
1. Project Description
At the moment fashion industry in Kazakhstan is in the most heat of the development. Every year more and more talented designers are appeared, seeking to bring Kazakh fashion to the world market. However, there is a limited number of fashion brands, which produce a qualified and attractive clothes for Muslim women. 
The project’s name is Diamond Sky and this name is chosen not occasionally. There are two metaphors: diamond and sky. Diamonds mean rewards and sky means the Heaven, so if Muslim woman strictly follows the dress-code by her religion, at the end of her life she will get a reward. Therefore, these two metaphors were united in one name for the clothes line project. Diamond Sky LLP combines the cultures of two large countries and two different dimensions - fashion and religion. There are two radical sides of this project, which should be implemented successfully and the company have such plans as successfully developing every year, improving design and quality of clothing, promoting high moral values, freedom of movement and happiness to be yourself for Muslim women.
Diamond Sky LLP promises to become a true sensation in both Kazakhstan and the United Arabian Emirates. The brand is focused on the lifestyle of Muslim females, supporting their concepts of a high level of moral principles and pureness, an inner authenticity and an internal beauty. Being a unique Muslim brand in Kazakhstan, Diamond Sky LLP strives to reflect and support the lifestyle of Muslim people and creation of a new society with a positive perception and new ideas.
The project will be actively supported by Kazakhstan and Arabian media as a concept of the brand is really honest and pure. With low prices and high quality, brand clothes will be available for different incomes and the range of clothes will be varied.
Considering that the most part of female population of Kazakhstan follows European style of clothes, it will justified to export the production of Diamond Sky LLP to the United Arabian Emirates as the clothes line is expected to be rather successful in comparison with Kazakhstan market, where the fashion line will be also presented.
2. Analysis of Country Factors 
2.1 Factors Affecting Balance of Trade Relations between Kazakhstan and the United Arabian Emirates
The United Arab Emirates is one of the key partners of Kazakhstan in the Middle East. Its relationship is based on a friendship and a mutual trust. At the moment it is possible to note the progressive dynamics of bilateral trade and economic relations. According to Issaliyeva, Ospanova and Alibekuly (2018), since Kazakhstan’s independence, the total volume of direct investments of the UAE in Kazakhstan amounted to almost 2 billion of dollars. At the same time Kazakhstan invested more than 900 million dollars in the UAE economy. In addition, currently there are about 200 joint ventures in Kazakhstan, partially owned by the business of the UAE. The Ministries of Foreign Affairs of both countries agreed to establish a mechanism for the exchange of information on emergencies with citizens requiring consular and legal protection. The Ministers also discussed the agreements reached during the January visit of President Nursultan Nazarbayev of Kazakhstan to Abu Dhabi, as well as trade, economic and investment cooperation and international issues, including the Syrian crisis, the situation in Yemen, Libya and Iraq (2012).	Comment by Anonymous: Good
However, as Issaliyeva, Ospanova and Alibekuly (2018) mentioned, countries expressed their desire to cooperate within the framework of regional and international organisations, including the United Nations, the Organisation of Islamic Cooperation and the Conference on Interaction and Confidence-Building Measures in Asia. Kazakhstan and the UAE made a significant breakthrough in its bilateral negotiations on consular issues. The geography of the tourist destinations has significantly expanded. The UAE is one of the most popular places among Kazakhstan’s tourists. According to statistics, provided by the Minister of the UAE, every year the Emirates is visited by about 100,000 Kazakhstan citizens. In turn, Kazakhstan offers visa-free regime for UAE citizens for 30 days at each visit (p. 213).
Therefore, it is necessary to highlight the major factors which are going to influence on the effectiveness of trade relations between Kazakhstan and the United Arabian Emirates. 
Differences in prices for the final goods: the level of well-being of the UAE is higher than in Kazakhstan, so the prices will be different in both countries.
Currency Exchange Rates: the final prices for the realisation of clothes in the UAE will be depended on the exchange rate between KZT and AED. 
Terms of production costs between Kazakhstan and the UAE: some specifics and features should be considered towards the production costs.
Then, there are some certain factors, which can influence the forecasted demand for the Kazakhstan’s clothes line in the UAE should be described in more details. 
Differences in prices for the final goods
This is an important factor to mention as the life in the UAE is much higher in comparison with Kazakhstan. According to as AlSafar, Al-Ali and Elbait (2019), all UAE citizens enjoy free health care and they are entitled to free primary, secondary and higher education. Emirates students can choose from 71 UAE higher education institutions or receive a grant to study at any university in the world. For example, Abu Dhabi has branches of New York University and Sorbonne. In nearby Al Ain, 14,000 students study at the UAE State University. Branches of the University of Exeter and Michigan State University were opened in Dubai, too. Lectures are in Arabic and English, many subjects are taught by visiting professors from Europe and the United States. 	Comment by Anonymous: Good
Further, AlSafar, Al-Ali and Elbait (2019) mentioned that when married, UAE citizens are provided with cottages and land plots free of charge. Next, 80 years is an average life expectancy of women in the UAE, 77 years - men (55th in the world) and for comparison: in Russia 75 years and 63 years respectively. In addition, 70,000 dirhams is a state grant, receiving by married citizens of the Emirates. 10,200 dirhams ($2780) is the minimum basic pension of a UAE resident. For comparison: 70 000 KZT (~ 155 $) is the average amount of laborpension in Kazakhstan. The pension of a UAE resident increases by 2% every year of work after reaching 20 years of service and two pensions are received by a widow or other heir.	Comment by Anonymous: Good
Currency Exchange Rates
Dirhams in tenge is the exchange rate of the UAE currency to the currency of Kazakhstan. Both countries have large oil reserves, but are significantly different. The exchange rate will be interesting to both tourists and various investors and migrant workers. Despite the fact that most often the ratio of both currencies to the dollar is used, 1 dirham how many to tenge is also relevant. This indicator will allow to understand without unnecessary calculations how much money can be received or will have to be spent in a given situation.
The exchange rate of 1 dirham in tenge is particularly often used by tourists and migrant workers. The UAE is one of the most popular and colourful tourist countries. Many people, including residents of Kazakhstan, come here for vacations. Tenge to dirham is also relevant to transfer to migrant workers. As AlSafar, Al-Ali and Elbait (2019) indicated, more than 70% of the UAE population are migrants from other states, including Kazakhstan. They are paid in local currency because on coming back to their country they want to know what amount will be brought with them. 1 dirham to tenge is also used in other activities, including retailing and trading. Investors are interested in this indicator, as it will allow to calculate their profit. When investing in another country's economy, it is important to know how the exchange rate of the national currency is changing.
Terms of production costs between Kazakhstan and the UAE
The production costs are rather different in these two countries and for the production it is better to use materials and fabrics, purchased in Kazakhstan and then promoting the ready-to-wear items to the market of the UAE. The production is better to located in Kazakhstan and the most part of the ready items are better to realised in richer country by its level and resources.	Comment by Anonymous: Good
2.2 Control of Imports in the UAE
According to Issaliyeva, Ospanova and Alibekuly (2018), the United Arab Emirates is a member of the Cooperation Council of the Arab States of the Persian Gulf (GCC), and there is a single GCC customs law on the territory of the Emirates. The UAE legislative system consists of both federal and local laws and legislation. The country had recently established the Federal Office of Customs, but local customs authorities were still in place in certain Emirates. The customs declaration is used for all imports and all goods. Its predecessor was a declaration in force until 2003 (p. 215).
As AlSafar, Al-Ali and Elbait (2019) underlied, the customs procedures are the same in all Emirates, but the state authorities involved in agricultural inspection are different in each Emirates. The main port of arrival in the UAE is the Dubai port, which currently handles 70% of the Emirates 'non-oil trade. The importer or its current customs agent shall provide general documentation for imports to Dubai to the customs authority together with the relevant licences, sanitary certificates and authorisation from the municipality of Dubai. The goods are then subject to inspection by customs authorities. Food products are subject to conformity checks by the municipality of Dubai. As a rule, this happens simultaneously or directly after customs inspection. If the municipality confirms that everything is fine, it gives its consent to the free circulation of food in Dubai.
Issaliyeva, Ospanova and Alibekuly (2018) also mentioned that in the event of any delay between the confirmation of goods by Customs and the inspection by the municipality, the goods are transferred to a special food warehouse where the inspection is carried out before the goods can be taken away. After obtaining permission from the municipality, Customs creates a declaration using its internal computer system. The relevant duties are invoiced and paid by the importer by cash, cheque or bank guarantee. Upon payment of the customs duty, the final electronic declaration shall be printed in triplicate, confirming payment of the duty to the customs office, and shall be provided to the addressee of the goods together with the original delivery order. These documents are submitted to the Port Authority for payment of port fees and cargo handling. The Port of Dubai Authority (DPA) puts a seal on the declaration, thus confirming the payment of port fees (p. 215).	Comment by Anonymous: Good
It was stated in the article of AlSafar, Al-Ali and Elbait (2019) that Dubai Customs has recently introduced an online eMirsal portal, which can be used by both registered importers and customs agents. The platform allows you to create requisitions electronically. Exporters are able to apply for a certificate of discharge issued by Customs to confirm the arrival of goods in the UAE. One of the preconditions for importing any agricultural food into Dubai is an import certificate issued by the municipality of Dubai. In other Emirates, this role is performed by the Food Administration and Environmental Laboratories.
3. Analysis of Foreign Exchange Market
For launching the financial transactions between Kazakhstan and the UAE it was decided to choose one of the most reliable banks in Kazakhstan - Development Bank of Kazakhstan JSC, specialising on the financial and developing large businesses, including the multinational ones. 
The following financial and business transactions are going to be settled down through Development Bank of Kazakhstan JSC:
Suppliers payments
Operational costs payments
Differences in foreign exchange rates between KZT and AED
Financial transactions for long-term and short-term purposes
Trading transactions in Kazakhstan and UAE	Comment by Anonymous: Good
3.1 Spot Market
It is crucial to indicate the spot market for conducting the exchange rate transactions between KZT and AED accordingly. So, the following business transactions can be indicated through the means of spot market.
Conversion transactions of KZT to AED
Conversion transaction of AED to KZT
Control and management of business deals in UAE
Control and management deals in KZT
At the moment 1 AED equals to 116.6329 KZT. 	Comment by Anonymous: Date? 
According to http://exchangerate247.com, it was an essential fluctuation of the exchange rate for the period from March, 3, 2020 and April, 21, 2020. At the beginning of March the rate was 103.80 AED to 1 KZT, then on March, 20, 2020 it was dramatically increased to 124.73 AED, for a period from March, 20, 2020 to April, 2, 2020 the indicators were stable and did not changed till April, 10, 2020, when the exchange rate was fall down to 116.48 AED. Now the indicators are at the same level and since April, 10, 2020 they were not changed.
It is possible to see the bid and ask for KZT and AED details in Table 1. See Table 1 below.
Table 1: Exchange rates of KZT to AED for April, 2020 (Source: http:exchangerates247.com)	Comment by Anonymous: Where is the Table? 
The graph below demonstrates the fluctuation between AED and KZT for the period from the end of March and the end of April. See Figure 1 below.
Figure 1: AED and KZT Exchange Rate (from March, 14, 2020 to April, 12, 2020) (source: 	Comment by Anonymous: No graph? 
As it is seen from Figure 1 above, the fluctuation was dramatical in the given period.	Comment by Anonymous: No figure is above. 
3.2 Analysis of AED/KZT Cross Rate for 1 Month, 3 Months and Last Year	Comment by Anonymous: better to give this table a name and numberCurrent Rate
118.6349
Bid Price
118.6347
Ask Price
118.6346
Open Price
116.5826
1 month:
According to investing.com, the AED/KZT exchange rate got the highest result of 0.07411 and the lowest - 0.07312 for a period from March, 20, 2020 to April, 20, 2020. 
According to walker (2020), such currency fluctuations were predictable because of two crucial events in the world economy:pandemic spreading of COVID-19 and OPEC agreement’s closure. 
3 months:
According to investing.com, the AED/KZT exchange rate got the highest result of 0.07411 and the lowest - 0.06561 for a period from February, 20, 2020 to April, 20, 2020. 
During the last three months the world met significant changes because of the pandemic situation and fluctuations of oil prices in the market.
1 year
According to investing.com, the AED/KZT exchange rate got the highest result of 0.07411 and the lowest - 0.05321 for a period from April, 20, 2019 to April, 20, 2020. 
During the last year, the economy had really stable situation in currency rates and it was no dramatic events as in 2020.
General review
Obviously, the exchange rates between AED and KZT are rather stable for the recent two weeks and one month since it was a dramatic increase in the rate. Such increase was happened due to the fluctuation of dollars, on which other world currencies are influenced. As Walker (2020) explained, these instabilities in the exchange market was connected with two important factors: a closure of the long-term agreement of OPEC members and a development of pandemic COVID-19. 	Comment by Anonymous: Good
4: Forecasting of the Markets
Generally, the major aim of the futures and forwards is to allow enterprises to consider the future exchange rates for a future for a specific number of the currency for further exchange. Therefore, the realise a potential for these futures and forwards in order to the exchanges rates between AED and KZT, it is necessary to analyse the current events, influencing the fluctuations of USD, which is totally influencing on other currencies in the world, including AED and KZT as well. 
According to investing.com Oil prices have intensified the drop to more than five percent in the middle of April, trading on growing fears of falling demand due to the radical measures being taken around the world to curb the spread of COVID-19. The value of May's Brent oil futures on the London ICE Futures Exchange is $33.91 per barrel, $1.88 (5.25%) below the price at the close of the previous session. At the end of trading from that amount, futures fell by $1.43 (3.84%) to $35.79 per barrel. WTI oil futures for April at the New York Commodity Exchange (NYMEX) e-trading by this time fell by $1.68 (5.09%) to $31.3 per barrel. By the close of previous trading, the contract price was $32.98 per barrel and down $1.38 (4.02%) from the previous session. Then, WHO CEO Tedros Adhanom Gebreyesus reportedly announced a pandemic over the COVID-19. Following this, US President Donald Trump decided to ban travel from Europe to the United States from March 13 for the next 30 days. Restrictions will also apply to freight transportation as the American president said in an address to citizens. 	Comment by Anonymous: GOod
Walker (2020) underlined that after these events, the Italian authorities have imposed a nationwide quarantine over COVID-19 since March 10. India on Thursday reported the suspension of most visas to stop the spread of a pandemic situation. As Vandana Hari, a founder of Vanda Insights Singapore consulting company stated: “Now we are seeing the whole world go to isolation”. According to Bloomberg, oil demand is likely to collapse, and all previous forecasts of oil consumption can now be forgotten. While demand is falling, oil-producing countries are claiming an increase in production. Oil is cheap, because fears of excess supply in the global market will not go away while Saudi Arabia, Russia and the United Arab Emirates fight for market share.
Clearly, as it is possible to find out on investing.com, Saudi Arabia's state-owned oil company, Saudi Aramco said that it will increase production capacity to 13 million barrels per day (b/s) from 12 million b/s. Meanwhile, Abu Dhabi National Oil Co. (ADNOC), the UAE 's state-owned company indicated that it would increase production from 1 million bps in April to 4 million bps. Also, the U.S. Department of Energy showed that the country's oil reserves rose for the seventh week in a row by 7.7 million barrels.
All these events influence on the whole world situation, but at the moment it is too early to make both positive and negative forecasts. 
5. Analysing the Options of Currency Market
As Reus, Carrasco and Pincheira (2019) said, a wide range of currency options provides an obvious right to purchase a necessary security at a certain price or under the maturity date, which is Call Option or an opportunity to trade a necessary security at a certain price or under the expiry date, which is Put Option (p. 22). 
Considering an unstable situation with USD, which negatively influences on all currencies, including AED and KZT, the project Diamond Sky can actively use the options of currency market in the next conditions:
Received sales transactions from the UAE are not indicated clearly.
Received remittances from the UAE are not indicated clearly.
Amount of financial transactions to UAE is not indicated clearly.
Date of financial transactions to UAE is not indicated clearly.
Asymmetric patterns of cats flow will be more preferred than other patterns.	Comment by Anonymous: Cash
Further, Call Option can be used when the enterprise would like to get KZT from the UAE transactions. PUT Option can be used when the enterprise would like to sell KZT in the UAE financial transactions. So, taking a special rate for the financial transactions between these two countries allow to stimulate financial revenues, not depending on the economic situation in the world and be secured from the unexpected risks and circumstances. 
According to As Reus, Carrasco and Pincheira (2019), the prices of options, compared to those of other foreign exchange trading instruments, are influenced by more factors. Unlike spots or forwards, both high and low volatility can create profitability in the option market. For some, options are a cheaper instrument of foreign exchange trade. For others, options mean more security and accurate execution of requests for loss closing (stop-loss orders). Currency options occupy a rapidly growing sector of the currency market (p. 28). 
Then, As Reus, Carrasco and Pincheira (2019) highlighted that the options are commonly referred to in connection with risk insurance strategies. Traders, however, are often misguided about both the complexity and ease of use of options. There is also a lack of understanding of options. In the currency market, options are possible for cash or in the form of futures. It follows that they are traded either "over-the-counter" (OTC) or in a centralised futures market. Most of the currency options, approximately 81%, are traded. This market is similar to spot and swap markets. Corporations can contact banks by phone, and banks trade with each other either directly or through brokers. This type of deals allows maximum flexibility: any volume, any currency, any term of the contract, any time of day. The number of currency units can be whole or fractional, and the value of each can be estimated in both United States dollars and other currencies. Any currency, not just that available under futures contracts, can be traded as an option. Traders can therefore operate on the prices of any, the most exotic currency they need, including cross-prices (p. 31). 	Comment by Anonymous: Good
6. Analysis of the Intervention of the National Bank
Generally, as it was stated on the official site of the National Bank of Kazakhstan, the analysis of activities of foreign multinational companies in Kazakhstan allows to highlight the following number of established trends. First, the concentration of transnational capital is due to the fact that in the context of globalisation there is actually a new international division of labor, according to which Kazakhstan is considered as a large supplier. Second, the existing low efficiency of the contract management system. Overall, the results of privatisation programmes and contract management were unambiguous. On the one hand, productionstabilised, and the companies continued to provide jobs and social services to settlements where they operated. Thus, the mechanism for the recognition, observance and protection of human rights in developing countries, in particular in Kazakhstan, has not been sufficiently developed. At present, experts note the insufficient number of strong independent trade unions, there is no cohesive green movement and a powerful consumer rights movement. Citizens’ access to justice and environmentally sensitive decision-making is somewhat limited. This, in turn, leads to the fact that multinational cooperations, in order to generate higher profits, in some cases violate fundamental human rights. Transnational corporations are moving their Central Asian affiliates to Kazakhstan. Thus, the presence of large world players in our market is confidence from investors.
So, it is clear that the National Bank can internet into the activity of the company in case of a violation of human rights.	Comment by Anonymous: Good
7. Analysis of Spots and Forwards Rates 
First, it is necessary to analyse the quotations for AED/KZT for two large banks of Kazakhstan: Development Bank of Kazakhstan and Halyk Bank. See Table 2 below.
Table 2: The quotations for AED/KZT of Development Bank of Kazakhstan and Halyk Bank	Comment by Anonymous: Where is the table? 
Clearly, the same exchange rate indicates that there is almost the same spot rates in both banks, not depending on its major course of the banking services.
Next, it is necessary to analyse the exchange rates for AED/KZT for the Development Bank of Kazakhstan and highlight the interest rates of both Kazakhstan and the UAE. See Table 3 below. 
Table 3: Interest rates for AED/KZT	Comment by Anonymous: Table?
The formula for Interest Rate Parity:
1+i$= ((Et(st+k))/ St)*(1+ic)
So, to calculate IRP is necessary to:
The interest rate of KZT plus one should be equal.Forward of KZT/AED
18.1521
1 year interest rate Kazakhstan
0.38
1 year interest rate UAE
0.051
Development Bank
Halyk Bank
116.28
116.34
The forward of AED should be decided by the current spot of AED
A number of times plus the interest rate of AED
The formula is clear indicated and conforms the results. 
8. Indicating the International Fisher Effect
The International Fisher Effect demonstrates that an expected disparity between the exchange rates of two countries is equal to the differences between the nominal interest rates of these countries. There is a brief summary of five major quarters for the last year between the treasury bill rates of Kazakhstan and the USA and the exchange rates of its currencies. See Table 4 below.
Table 4: IFE 
The formula for International Fisher Effect is:
E= (i1-i2)/ (1+i2)	Comment by Anonymous: Good
So, the related calculations are given by using this formula. 
Analysis of Q1 2019:
-0.59= (2.62-7.88)/ (1+7.88)
-0.59≠0.051
Analysis of Q2 2019:
-0.058= (2.73-7.96)/ (1+7.96)
Kazakhstan
UAE
% of age change in AED/KZT
Q1 2019
7.88
2.62
-0.59
Q2 2019
7.96
2.73
-0.58
Q3 2019
8.07
2.112
-0.66
Q4 2019
8.11
2
-0.67
Q1 2020
8.22
1.56
-0.72
-0.058≠-0.051
Analysis of Q3 2019:
-0.66=(2.112-8.07)/ (1+8.07)
-0.66≠-0.051
Analysis of Q4 2019:
-0.67= (2-8.11)/ (1+8.11)
-0.67≠0.051
Analysis of Q1 2020:
-0.72= (1.56-8.22)/ (1+8.22)
-0.72≠0.051
The above analysis highly demonstrates that IFE indicators do not match the annual interest rate and it means that now the Central Banks of both Kazakhstan and the UAE start to concentrate more on the inflation target rather than on interest rates. 
9. Analysis of the exchange rates tendencies Week
Day
KZT/AED
Week 1
21-Mar-20
0.008212
22-Mar-20
0.0081904
23-Mar-20
0.0082516
24-Mar-20
0.0081643
25-Mar-20
0.0082088
26-Mar-20
0.008221
27-Mar-20
0.0082337
Average
0.008211686
Week 2
28-Mar-20
0.0082335
29-Mar-20
0.0083173
30-Mar-20
0.0081745
31-Mar-20
0.0081621
1-Apr-20
0.0081594
2-Apr-20
0.0081508
3-Apr-20
0.0082601
Average
0.008208243
Week 3
4-Apr-20
0.0082601
5-Apr-20
0.0082485
6-Apr-20
0.0083534
7-Apr-20
0.0083949
8-Apr-20
0.0084183
9-Apr-20
0.0084198
10-Apr-20
0.0085849
Average
0.008382843
Week 4
11-Apr-20
0.0085848
12-Apr-20
0.0085791
13-Apr-20
0.0086016
14-Apr-20
0.0086214
15-Apr-20
0.0086057
16-Apr-20
0.0085713
17-Apr-20
0.0086093
Average
0.008596171
Week 5
18-Apr-20
0.0086389
19-Apr-20
0.0086286
20-Apr-20
0.0085697
21-Apr-20
0.0085697
Average
0.008601725
For further understanding the situation at the exchange rate market it is necessary to analyse the latest tendencies of fluctuations between the currencies of Kazakhstan and the UAE. The Table 5 demonstrate the main changes in the exchange rate chart. See Figure 5 below.
Table 5: Exchange Rates of KZT/AED	Comment by Anonymous: Where is the table? 
Then, it is necessary to see how the trends of these two currencies were fluctuated for a period of one month. See Figure 2 below.
Figure 5: Trends of KZT/AED for a period from March, 21, 2020 to April, 20, 2020
Outcomes
As it seen from the results above, the average exchange rates equals approximately 0.0084. The changes for the whole period are rather stable, but sometimes meet some growths and declines, depending on the situation in the world market. 	Comment by Anonymous: What is forecasted rate? 
10: Analysis of Exchange Rate Risks
Generally, there are three main types of foreign exchange exposures: transaction, translation and economic foreign exchange exposures. It is possible to describe each of them for better understanding.
The first form is a transaction foreign exchange exposure, which is occurred because of an obvious appearance of the foreign exchange transaction. The financial transactions which are happened at the last moment after an exposition of the date of the financial deal the currencies can be fluctuated as well, depending on the economic conditions of both countries of these financial transactions. The range of such transactions include the financial checks of foreign currency transactions from those who is obliged to pay for services, actual payments for imports and a position of the debts, connecting with the foreign currency. 	Comment by Anonymous: Good
The second form is a translation foreign exchange exposure, which is occurred because of the conversion of the accounting books to the currency of the home country. This exposure is pretty obvious and understandable for an acceptance.
The third form is an economic foreign exchange exposure, which makes a direct influence on the importance of the company in the existing economic conditions and illustrates the relevance of the current economic and financial events on the fluctuations of the currencies. 
10.1 Analysis of the Relevance of Foreign Exchange Exposures to Diamond Sky LLP
1. Transaction Exposure
Diamond Sky is going to be exposed by its operational activities in its transaction foreign exchange exposure. All the transactions from those who have financial obligations towards the company will be considered and included. The office in the UAE will be obliged to provide reports a month or two months to forecast the sales and its increase or decrease due to the trends of the foreign exchange market. 
2. Translation Exposure:
From a side of translation foreign exchange exposure, Diamond Sky will be followed to its regulation and actually it will have two books in KZT and AED for better analysis of the revenues and expenses in both countries. Considering that the major market will be in the UAE and additional - in Kazakhstan, both currencies are rather important for booking.
3. Economic Exposure
Then, it is obvious that the enterprise would be exposed from a side of an economic foreign exchange exposure as both KZT and AED are really vulnerable in the currency market and depend on the USD actually. In this regard, it would be necessary to follow the trends in three currencies as USD, KZT and AED as it makes a sense in order to conduct an appropriate business strategy and consider the benefits and drawbacks in the system of transactions between thecountries.
11. Analysis of foreign exchange exposure hedging in accordance with futures and forwards 
First, it is necessary to start from the forwards. Forward contract is a contract under which one party of the transaction - the seller undertakes to transfer the underlying asset (goods) to the other party under the contract - the buyer or fulfils an alternative monetary obligation within the period specified by the contract. At the same time, the buyer undertakes to accept and pay for this basic asset, under the terms of which the parties have counter-monetary obligations in the amount depending on the value of the indicator of the basic asset at the time of performance of the obligations, in the procedure and within the term or within the term established by the contract. In other words, a forward contract is a bilateral agreement on the sale (acquisition) of a fixed asset, which is drawn up in a standard form. A forward contract certifies that one party undertakes to sell or purchase an asset at a certain time. At the same time, the price of the transaction, which will take place in the future, is fixed and set at the time of conclusion of the forward contract.
Here it is possible to provide an example of forward contract for Diamond Sky LLP. 
Let’s imagine that Diamond Sky is going to get AED 30 000 in 30 days. The approximate bid and ask spot rates for AED/KZT, provided by Development Bank of Kazakhstan is 116.65 KZT. Then, the management of Diamond Sky conducted a small discussion with Development Bank of Kazakhstan and the bank considered a new quote, activating for only 30 days, 116.84 KZT. After getting an agreement with Development Bank of Kazakhstan Diamond Sky decided to exchange AED 30 000 to KZT by a quote of 116.84 during the next 30 days. So, at the end of this agreement, Diamond Sky should receive 3 505 200 KZT.
Therefore, in case if a spot rate will be increased to 117 KZT during 30 days, Diamond Sky will avoid a loss as all money will be paid by the current rate. 
However, in case if a spot rate will be decreased to 116.51 KZT, Diamond Sky will lose money as it was agreed by the agreement that there is a fixed quota.	Comment by Anonymous: Good
Then, there are futures contracts, which mean contracts to fix the terms of purchase or sale of a standard quantity of a certain asset within a specified period in the future, at the price established today. It is generally accepted that there are more than two working days between fixing the terms of the transaction and performing the transaction itself, otherwise these transactions are referred to as Tod, Tom and Spot. In the futures, as in any other transaction, two parties - the seller and the buyer - participate. The buyer of the futures contract (futures) undertakes to buy the asset within the agreed period. The seller of the futures contract undertakes to sell the asset within the specified period. Both obligations relate to the standard quantity of a certain commodity, at a specific time in the future, at the price established at the time of conclusion of the futures.
12. Analysis of the Effectiveness of the Project
It is possible to say that clothes business is always in a huge demand and especially Muslim clothes for women will be really in trend in such country as UAE. So, it was decided that for analysing the effective of the project it would be taken such instruments of capital budgeting as accounting rate of return, net present value, and internal rate of return.
12.1 Accounting Rate of Return (ARR)
The first instrument to calculate is Accounting Rate of Return, which provides a set of negative factors of payback time of the project deadlines, so it is possible to see how it would be go for the next several years. See Table 6 below.Year
2020
2021
2022
2023
2024
Profit
102284
89779
77830
68670
63890
Table 6: ARR Indicators
The formula of Accounting Rate of Return (ARR) is: 
;
The result is equals to 5.03%, which is a positive number. It means that the project is going to be successful and productive in the future. 
12.2. Net Present Value (NPV)
The next financial instrument is Net Present Value. It allows to indicate how many finances are needed and how effectively investments would be spent. In addition, analysing NPV it is possible to see possible negative sides, problems, questions and define the major course for saving the investments and turn them to the efficient ones. 
For NPV calculation a simple formula is used, such as: NPV = (Today’s value of the expected future cash flows) – (Today’s value of invested cash). See Table 7 below.
Table 7: NPV 	Comment by Anonymous: You missed many components in FCFs. 
12.3. Internal Rate of Return (IRR)
This instrument again shows how the project will be successful. IRR is calculated by the same formula as NPV, but it equals to 0.26%. This result is rather neutral, but it demonstrates that it can be some problems during the project implementation.	Comment by Anonymous: Are you sure? IRR is less than project cost of capital. 
13. Conclusion
Diamond Sky LLP would like to promote fashion clothes for Muslim women for selling in the UAE. Considering the high demand for such type of the clothing in the region and taking into account the increasing trends for Muslim religion, it is obvious that the project will be successful and profitable from all possible sides of economy. The UAE and Kazakhstan are good cooperators and support mutual investments, so there are no any issues in the conducting stable business relations in the UAE for Kazakhstan. NPV calculation
Year
Cash Flow
WACC
Present Value of
Cash Flows
2020
-4528466
1
-4528466
2021
1959029
0.900901
1764891
2022
1947080
0.811622
1580294
2023
1937920
0.731191
1416990
2024
1933140
0.658731
1273419
The enterprise will underline all the risks of taking the multinational company and it is planned to have all three types of foreign currency exposition during the launching the project of Muslim clothes in the UAE. Then, a regular monitoring of foreign exchange helps to avoid risks and keep the business for many years. Forward contacts can save the budget and decrease risks of currency fluctuation. The company gets a demandable business niche, so it is a major reason of its future competitiveness and development. 
14. References	Comment by Anonymous: Not APA
AlSafar, H., Al-Ali, M., Elbait, G (2019). Introducing the first whole genomes of nationals from the United Arab Emirates, retrieved from https://doi.org/10.1038/s41598-019-50876-9
Bloomberg Site, retrieved from http://bloomberg.com 
Exchange Rates Site, retrieved from https://www.exchangerates247.com/currency-converter/?from=AED&to=KZT
Investing Site, retrieved from http://investing.com 
Issaliyeva, A., Ospanova, A., Alibekuly, A. (2018). Kazakhstan and GCC: Islamic component in joint collaboration Opción, Vol. 34, No. 85-2, 2018, pp. 205-220, retrieved from https://www.redalyc.org/jatsRepo/310/31057290009/31057290009.pdf 
Kazakhstan Exchange Rates Site, retrieved from https://www.exchangerates.org.uk/KZT-AED-exchange-rate-history.html 
Kazakhstan Interests Rates Site, retrieved from https://www.ceicdata.com/en/indicator/kazakhstan/long-term-interest-rate
National Bank of the Republic of Kazakhstan Site, retrieved from http://nationalbank.kz 
Reus L., Carrasco J., Pincheira P. (2019). Do It with a Smile: Forecasting Volatility with Currency Options, Finance Research Letters, pp. 13-42, retrieved from https://www.sciencedirect.com/science/article/abs/pii/S1544612319302831
UAE Interest Rates Site, retrieved from https://tradingeconomics.com/united-arab-emirates/interest-rate
Walker A. (2020). US Oil Prices Turn Negative As Demand Dries Up, BBC News, retrieved from https://www.bbc.com/news/business-52350082 
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