FM04
International Finance
Assignment – I
Assignment Code: 2013FM04B1 Last Date of Submission: 15th October 2013
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. Explain the components of balance of payment (BOP) account. What is the managerial implication of the deficit or surplus of BOP? What is India’s current BOP position?
2. How has the exchange rate evolved over the year? What kind of exchange rate regime does India follows?
3. a. What is foreign exchange market? What are the features of foreign exchange market? Who are the major participants of forex market?
b. What is exchange rate? What are the types of quotation available? If the spot rate of Rs / GBP is: 81.55 – 84.75 and Rs / Euro is: 59.35 – 62.60 then find the spot rate of USD / GBP.
4. Explain the factors which affect foreign exchange rates. What are the parity conditions?
Section-B
Case Study
Following information about exchange rate and interest rate are available:
Spot rate : Rs 56.88 / US$
3 month forward rate : Rs. 61.75 /US$
3 month interest rate in US : 4% pa
3 month interest rate in India: 7% pa
Case Questions:
Does arbitrage gain exist, how? Assuming no transaction cost or taxes exist, what operation would be carried out to take the possible arbitrage gain, if any? Assume Rs. 10 million or US$ 10 million borrowings (as the case may be) to explain your answer.
FM04
International Finance
Assignment – I
Assignment Code: 2013FM04B1 Last Date of Submission: 15th November 2013
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. Explain the issues involved in international capital budgeting decisions. Are the traditional methods of evaluating capital budgeting decisions appropriate, why?
2. What are the different types of foreign exchange exposure? Discuss the methods to hedge foreign exchange exposure.
3. a. What are currency derivatives? Differentiate currency forward with currency
futures.
b. An Indian exporter who has 3 month receivable of US$ 10,000 wants to hedge his position. Current spot rate of Rs/$ is 58.75 and Rs. is likely to appreciate in 3 months by at least 15%. How can the exporter hedge his position if the forecast it accurate? Show your calculation.
4. What are the International sources of funds? Explain after categorizing it into equity & debt fund and long-term & short term.
Section-B
Case Study
Company A is AAA rated Indian company who wishes to raise US$ 10 million to fund its US subsidiary from international market including the US market. It can raise funds through 10.50 % fixed rate bonds. Alternatively, it can raise it through a floating rate bond at LIBOR + 0.50%.
The current exchange rate is Rs.50/US$.
Company B is BBB rated US company who wishes to raise Rs. 500 million from Indian market to finance its Indian subsidiary. It can raise funds through 12.50 % fixed rate bonds. Alternatively, it can raise it through a floating rate bond at LIBOR + 1.25%.
Case Questions:
Assume that you are a swap dealer, who charge 0.50 % fee. Design a swap deal for Company A and Company B in such a way that it benefits both the Companies. Also find the fees of swap dealer and net saving for each company in the first year.
International Finance
Assignment – I
Assignment Code: 2013FM04B1 Last Date of Submission: 15th October 2013
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. Explain the components of balance of payment (BOP) account. What is the managerial implication of the deficit or surplus of BOP? What is India’s current BOP position?
2. How has the exchange rate evolved over the year? What kind of exchange rate regime does India follows?
3. a. What is foreign exchange market? What are the features of foreign exchange market? Who are the major participants of forex market?
b. What is exchange rate? What are the types of quotation available? If the spot rate of Rs / GBP is: 81.55 – 84.75 and Rs / Euro is: 59.35 – 62.60 then find the spot rate of USD / GBP.
4. Explain the factors which affect foreign exchange rates. What are the parity conditions?
Section-B
Case Study
Following information about exchange rate and interest rate are available:
Spot rate : Rs 56.88 / US$
3 month forward rate : Rs. 61.75 /US$
3 month interest rate in US : 4% pa
3 month interest rate in India: 7% pa
Case Questions:
Does arbitrage gain exist, how? Assuming no transaction cost or taxes exist, what operation would be carried out to take the possible arbitrage gain, if any? Assume Rs. 10 million or US$ 10 million borrowings (as the case may be) to explain your answer.
FM04
International Finance
Assignment – I
Assignment Code: 2013FM04B1 Last Date of Submission: 15th November 2013
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. Explain the issues involved in international capital budgeting decisions. Are the traditional methods of evaluating capital budgeting decisions appropriate, why?
2. What are the different types of foreign exchange exposure? Discuss the methods to hedge foreign exchange exposure.
3. a. What are currency derivatives? Differentiate currency forward with currency
futures.
b. An Indian exporter who has 3 month receivable of US$ 10,000 wants to hedge his position. Current spot rate of Rs/$ is 58.75 and Rs. is likely to appreciate in 3 months by at least 15%. How can the exporter hedge his position if the forecast it accurate? Show your calculation.
4. What are the International sources of funds? Explain after categorizing it into equity & debt fund and long-term & short term.
Section-B
Case Study
Company A is AAA rated Indian company who wishes to raise US$ 10 million to fund its US subsidiary from international market including the US market. It can raise funds through 10.50 % fixed rate bonds. Alternatively, it can raise it through a floating rate bond at LIBOR + 0.50%.
The current exchange rate is Rs.50/US$.
Company B is BBB rated US company who wishes to raise Rs. 500 million from Indian market to finance its Indian subsidiary. It can raise funds through 12.50 % fixed rate bonds. Alternatively, it can raise it through a floating rate bond at LIBOR + 1.25%.
Case Questions:
Assume that you are a swap dealer, who charge 0.50 % fee. Design a swap deal for Company A and Company B in such a way that it benefits both the Companies. Also find the fees of swap dealer and net saving for each company in the first year.
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