IIBM Exam paper:International Financial Management:contact us for answers at assignmentssolution@gmail.com

Examination Paper

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IIBM Institute of Business Management

IIBM Institute of Business Management

Examination Paper MM.100

International Financial Management

Section A: Objective Type (30 marks)

· This section consists of Multiple choice & Short Answer type questions.

· Answer all the questions.

· Part One questions carry 1 mark each & Part Two questions carry 5 marks each.

Part One:

Multiple choices:

1. Maintenance margin money denotes the minimum level to which the margin is allowed to

fall in the sequel of loss, if the balance drops below this, one has to deposit,

a. Initial margin amount

b. Variation margin amount

c. Maintenance margin amount

d. Initial as well as variation margin amount.

2. The two kind of swap in the forward market are

a. Forward swap and reverse swap.

b. Reverse swap and option swap.

c. Forward and option less swap.

d. Forward swap and option swap.

3. International Fisher Effect or generalized version of the Fisher effect is a combination of

a. PPP theory and Fisher’s open proposition.

b. Fisher’s open and closed proposition.

c. PPP theory and Fisher’s closed proposition.

d. None of the above.

4. Exchange rates are quoted as ‘direct’ and ‘indirect’ ,if the direct quote of a country ‘X’

(currency unit ‘a’) with country ‘Y’ (currency unit ‘b’), is “ a 50/ b 20” then the indirect

quote will be

a. b 2.5/ a 1

b. b 0.4/ a 1

c. b 10/ a 1

d. Cannot be calculated.

5. If the investors are risk neutral ie forward prices are equal to the expected spot prices at

delivery then the covariance of marginal rate of substitution and the exchange rate of

contract at delivery is

a. Always unity

b. Zero

c. Infinite

d. Between Zero and unity

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6. In cylinder or tunnel option, the correct option is

a. If the spot rate is lower than the lower strike rate then buyer has to pay lower spot rate.

b. If the spot rate is lower than the lower strike rate then buyer has to pay lower strike rate.

c. If the spot rate is higher than the higher strike rate then buyer has to pay lower strike

rate.

d. If the spot rate is higher than the higher strike rate then buyer has to pay higher strike

rate.

7. The concept of parallel loan says

a. Amount of the loan moves out of the county but it serves the purpose of internal loan

also.

b. Amount of the loan moves out of the county but it serves the purpose of cross border

loan.

c. Amount of the loan moves within the county and it serves the purpose of external loan

only.

d. Amount of the loan moves within the county but it serves the purpose of cross border

loan.

8. According to one of the earliest theory proposed by Hymer on the imperfect market

a. Multinational firm is a typical imperfect market.

b. Multinational firm is a perfect market

c. One should not look for control if want the maximum profit

d. None

9. If the NVP(net present value) from parent’s perspective and from the subsidiary’s

perspective are positive and negative respectively then

a. Project can not be accepted

b. Project shall be accepted

c. Project may be accepted but it is doubtful how far useful for parent unit.

d. Project may be accepted but chance of loss in host country currency will be there.

10. If ‘A’ and ‘B’ are the price elasticity of demand for import and export respectively then

devaluation helps to improve current account balance, only if

a. 2A + B is greater than 1.

b. A - B is equal to 0.

c. A+B is greater than 1.

d. A + B is lesser than 0.

Part Two:

1. Write a note on ‘Fixed Parity System’ for exchange rates.

2. What are Direct & Indirect Quotes of exchange rates?

3. What is ‘Forward Market Hedging’?

4. How could ‘Optimization of Portfolio’ be achieved?

END OF SECTION A

Examination Paper

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Section B: Caselets (40 marks)

· This section consists of Caselets.

· Answer all the questions.

· Each Caselet carries 20 marks.

· Detailed information should form the part of your answer (Word limit 150 to 200 words).

Caselet 1

Managing Exchange Rate Risk

Mahindra International (India) imported spares of an engine from a US manufacturer for $ 5,000 per

annum at a price of $ 2.5 per piece. The average exchange rate during 2001-02 was Rs. 47.70/$. The

Indian company imported the spares also from a British manufacturer. In fact, it had diversified its

import in view of reducing the risk associated with the supply. The import from the USA was

competitive in view of the fact the same spares imported from the UK was slightly costlier. The

American spares cost Rs. 119.25 per piece, while the British spares cost Rs. 120.00 per piece. In

2002-03, US dollar appreciated to Rs. 48.40 with the result that the cost of American spares turned

higher than the British spares. In the sequel of the appreciation of US dollar, the Indian importer cut

its demand from 2,000 pieces to 500 pieces. The loss to the US exporter was colossal. But at the same

time, the Indian Importer suffered a lot. It had to pay a higher price for the US spares in terms of

rupee. And also, it had to divert its import from the USA to the UK insofar as the pound sterling did

not appreciate during this period. All this happened in the wake of the exchange rate changes.

Questions:

1. Mention the loss borne by the US exporter in the sequel of appreciation of dollar.

2. What strategy the Indian importer needs to follow to hedge the exchange rate risk?

Caselet 2

ABN Amro Bank and Correspondent Banking in India

ABN AMRO bank has emerged as a major correspondent bank owing to a large network. In India, it

operates in six major cities, viz. Baroda, Chennai, Kolkata, Mumbai, New Delhi and Pune. Being a

correspondence bank, its product offerings are found primarily in the area of trade and clearing. It is

doing well in these owing to strong tie-up with local Indian banks reaching 350 centres across the

country. As a result, payments are effected speedily and effectively.

Cash Management

The customized products in the area of cash management include cheques payable at par at all its

branches across the country, apart from traditional collection services, such as collection of

outstation/upcountry cheques drawn on other banks. ABN AMRO is a member of all major clearing

centers in the major financial centers. It has an electronic delivery system and structures multilateral

netting of cash.

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Trade Services

Under trade services, the Bank offers a comprehensive range of products, such as:

1. LC reimbursement

2. Indian rupee trade payments

3. Handling documentary bills for collection

4. Bills negotiation

5. Letter of credit advising

6. Letter of credit confirmation

7. Guarantees

Treasury Services

Treasury services at ABN AMRO Bank (India) are available round-the-clock. Rupee funding at its

treasury desk is provided at competitive rates along with advice on market trends and rates. It

provides also advisory services on the request of financial institutions and corporate in the area of

regulatory, economic and financial matters including depository services.

Questions:

1. Describe the network of ABN AMRO Bank in India.

2. What role does it play for global cash management?

END OF SECTION B

Section C: Applied Theory (30 marks)

· This section consists of Applied Theory Questions.

· Answer all the questions.

· Each question carries 15 marks.

· Detailed information should form the part of your answer (Word limit 200 to 250 words).

1. Crawling peg is the compromise between fixed exchange rate and floating exchange rate

discuss.

2. Is international working capital management more complex than the domestic working

capital management?

END OF SECTION C

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