31760023 International Finance

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IV Sem. M.B.A. (Day)NI Sern. M.B.A. (Evening) Examination, July/ August 2006 (Updated Scheme) MANAGEMENT (Paper - F - 4) International Financial ManagementTime : 3 Hours SECTION - A(6x2=12) 1. Answer any six questions briefly: a) What do you mean by soft or weak and hard or strong currency ? b) What is BOP ? c) What is interest rate parity? d) Explain the terms, with examples, Bid quote and Ask quote. e) What is thebasic difference between a put on British pounds sterling and call on sterling ?

f) Explain the meaning of "Cross - rate consistency". g) Define tbe terms "hedging" and "currency risk. h) What is the essence of the theory of comparative advantage ? i) What do you mean by political risk ? j) What is dollarisation ?

Max. Marks : 75

SECTION - B Answer any four questions:(4x5=20)

2. What are the five basic mechanisms for establishing exchange rates ? How doeseach work ? 3. Why did the fixed exchange rate regime of 1945-1973 eventually fail ? 4. What are the arguments against a firm pursuing an active currency risk

management programme ? 5. HOW a MNE minimize its translation and transaction exposure simultaneously ? can 6. What are tha benefits of achieving a lower cost and greater availability of capital ? 7. What are a country's objectives when determining tax policy on foreign source income ? SECTION - C Answer any three questions:(3x10=30)

8. Spot and 180 - day forward exchange rates of several major currencies are given below. For each pair, calculate the percentage premium or discount expressedas' annual rate. P.T.O.


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European Euro: British Pound: Japanese Yell Swiss Franc Hongkong dollar

Ouoted spot rate $ 0.80001 $ 1.562 I & Y 12000/$ SF 1.6000/$ HK $ 8.00001$

180 dav forward rate $ 0.8160/ $ 1.5300/ Y 118.00/$ SF 1.6200/$ HK $ 7.8000/$

9. Assume a call option on euros is written with a strike price of $ 0.94001 at a p

remium of 0.9000 per euro ($ 0.00901~)and with-an expiration date three months from now. The option is for e 100,000. Calculate your profit or loss if you exercise before maturity at a time when the euro is traded spot at: b) $ 0.9200/ c) $ 0.9400/ d) $ 0.96001~f ) $ 1.0000/.

g) $ 1.0200/

10. Define International Fisher effect. Explain to what extent do emperical tests

confirm that the international Fisher effect exists in practice. 11. What are the main disadvantages for a firm located in an illiquid market and also in a segmented market ? 12. a) Explain the OL1 paradigm in relation to FDI. b) Explain the behavioural approach to FDI. SECTION - D (1x13=13) 1 3. On checking telerate screen, you see the following exchange rate and interest rate quotes: Currency Doh Swiss Franc 90 Day Interest rate (annualized) Spot rates. -

90 Day Forward Rates $0.726-32

4.99% - 5.03% 3.14% - 3.19% $0.711-22

a) Can you find an arbitrage opportunity ? b) What steps must you take to capita

lize on it ? c) What is the profit per $ 1,000,000 arbitrages ?


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IV Sem. M.B.A. (Day)NI Sem. MJ3.A. (Eve.) Examination, JulyIAugust 2005 (UpdatedScheme) F-4: FINANCE International Financial ManagementTime: 3 Hours

Max. Marks: 75

Instruction: Use of calculators permitted.

SECTION -A Answer any six of the following questions. Each question carries twomarks. (6x2=12) 1. a) What is current A/c generally composed of ? b) Distinguishbetween spot and forward market. c) What is currency call option ? d) Explain briefly International Fischer Effect. e) Who are the participants in the foreignexchange market ?f) Define translation exposure.

g) The US dollar-Thai Bath rate is: US $ 0.2339Bath and the US dollar Indian Rupee exchange rate is: US $ 0.2538lRs. What is RsBath exchange rate ? h) Differentiate between depreciation and devaluation. SECTION - B Answer any four of the following questions. Each question carries 5 marks. (4x5=20)

2. Explain purchasing power parity principle and the rationale behind it.3. An Importer has purchased from France goods worth 50,000 ffr. There is no quote available for Rs versus ffr. The quotes available are: i) US$ = Rs. 45.05110and ii) US $ = ffr 5.1025150 What is the value of this transaction in Rupee terms ? 4. Explain coupon swap with the.help of an example. 5. Distinguish between futures and options.

P.T.O.


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6. Explain straddle with the help of an example. 7. Given the following dataSopt rate 1$ = Rs. 42.00 10

6 month forward rate 1$ = Rs. 42.8020Annualised Interest rate on 6 month 'Rupee: 1.2% Annualised Interest rate on 6 month US $ : 8% Calculate Arbitrage possibilities. SECTION - C Answer any three of the following questions. Each question carries 10 marks. (3x10 = 30) 8. What d

o you understand by the term "International Cash Management" ? Briefly elucidateits objectives.9. Identify factors to be considered when assessing country risk. Briefly elaborate on how each factor can affect the risk to the MNC.

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10. Company A wishes to borrow 10 million at a fixed rate for 5 years and has been offered either 11% fixed or six month LIBOR + 1%. Company B wishes to borrow10 million at a floating rate for 5 years and has been offered either 10% fixedor 6 month LIBOR + 0.5%.+ .

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a) How do they enter into a swap arrangement in which each benefit equally ? b)What risks did this arrangement generate ? 11. Farm products is the Canadian affiliate of a US manufacturing company. Its balance sheet in thousands of Canadiandollars (C $) for January 1, 2001 is shown below. The January 1,2001 exchange rate was C $ 1.6 1 US dollar. Farm Products Balance Sheet (Thousands of C$)

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31760023 International Finance

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