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(Evening) Examination,
July/ August 2006
(Updated Scheme)
MANAGEMENT (Paper - F - 4)
International Financial Management
Time : 3 Hours Max. Marks : 75
SECTION - A
1. Answer any six questions briefly: (6x2=12)
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 the basic 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 ?
SECTION - B
Answer any four questions: (4x5=20)
2. What are the five basic mechanisms for establishing exchange rates ? How does
each 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. HOWcan a MNE minimize its translation and transaction exposure simultaneously ?
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 expressed as'
annual rate. P.T.O.
Ouoted spot rate 180 dav forward rate
European Euro: $ 0.80001€ $ 0.8160/€
British Pound: $ 1.562 I & $ 1.5300/£
Japanese Yell Y 12000/$ Y 118.00/$
Swiss Franc SF 1.6000/$ SF 1.6200/$
Hongkong dollar HK $ 8.00001$ HK $ 7.8000/$
9. Assume a call option on euros is written with a strike price of $ 0.94001€ at a
premium 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/€ f ) $ 1.0000/€ .
c) $ 0.9400/€ g) $ 1.0200/€
d) $ 0.96001~
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 90 Day Interest rate (annualized) Spot rates 90 Day Forward Rates
.-
Answer any six of the following questions. Each question carries two marks. (6x2=12)
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. 45.05110 and
ii) US $ = ffr 5.1025150
P.T.O.
6. Explain straddle with the help of an example.
7. Given the following data
Sopt rate 1$ = Rs. 42.00 10
6 month forward rate 1$ = Rs. 42.8020
Annualised Interest rate on 6 month 'Rupee: 1.2%
7
Annualised Interest rate on 6 month US $ : 8%
Calculate Arbitrage possibilities.
SECTION - C
f
Answer any three of the following questions. Each question carries
10 marks. (3x10 = 30)
h
b) What risks did this arrangement generate ?
5
11. Farm products is the Canadian affiliate of a US manufacturing company. Its J
r Evaluate each payment method. Which method would you prefer ? Why ?
F
SECTION - D
(Compulsory)
(1x13=13)
13. Case study
The Sports Exports Company converts British Pounds into Dollars every month.
The prevailing spot rate is about $1.65 per pound, but there is much uncertainty
about the future value of the pound. Jim Logaw, owner of the Sports Exports
Company, expects that British inflation will rise substantially in the future. In
previous years when British inflation was high, the pound depreciated. The
prevailing British Interest rate is slightly higher than the prevailing US interest
rate. The pound has risen slightly over each of the last several months Jim
wants to forecast the value of pound for each of the next 20 months.
i) Explain how Jim could use technical forecasting to forecast the future
value of the Pound. Based on the information provided, do you think that
a technical forecast of the Pound would reflect future appreciation or
depreciation in the Pound ?
ii) Explain how Jim could use fundamental forecasting to forecast the future
value of the Pound. Based on the information provided do you think that
a fundamental forecast of the Pound would reflect appreciation or
depreciation of the Pound.
iii) Explain how Jim could use a market based forecast to forecast the future
value of the Pound. Do you think the market based forecast would reflect
appreciation or depreciation or no change in the value of Pound ?
IV Semester MBA Examination, October 2004
(Updated Scheme)
F 4: INTERNATIONAL FINANCIAL MANAGEMENT
Time: 3 Hours Max. Marks: 75
SECTION -A
SECTION - B
3. What are the Special Drawing Right ? Why they are created ?
4. In Balance of Payment what are debit and credit transactions ? What are the
broad categories of International Transactions classified as debits and credits ?
7. FDI flows into India are around 3.4%, which is very low when compared to
China and Hong-Kong. What policy measures do you think the regulatory
authorities should initiate to attract more FDI flows into the country ?
P.T.O.
A - A ." ' I
4
SECTION - C I
I
rh i(
, Answc;r three questions: (3x10 = 30)
";
I
8. V411y is it important to study International Financial Management ? How is it
different from Domestic Financial Management ?
The US corporate tax rate is 40% and the Indian corporate tax ratio is 50%.
Because the IndianTax ratio is greater than the UsTax ratio, annual dividends
paid to Baltimore will not be subject to additional taxes in the United States.
There are no capital gain taxes on the final sale. Baltimore Tile uses a
weighted average cost of capital of 14% on domestic investments, but will
add 6 percentage points for the Indian Investment because of perceived
greater risk. Baltimore Tile forzcasts the Rupee/dollar exchange rate for
December 3 1st on the next six years to be:
Year Exchange rate -
Rs. 50.00/$
Rs. 54.001 $
Rs. 58.00/$
Rs. 62.00/$
Rs. 66.001$
Rs. 70.00/$ -
What is the Net present value and whether the Investment in the Indian
subsidiary is worth while ?