International Banking & Foreign Exchange Management
Q1. A Inc. and B Inc. intend to borrow $200,000 and $200,000 in
¥ respectively for a time horizon of one year. The prevalent interest rates are
as follows:
Company
¥
Loan
$ Loan
A
Inc
5%
9%
B
Inc
8%
10%
The prevalent exchange rate is $1 = ¥120.
They entered in a currency swap under which it is agreed that B
Inc will pay A Inc @ 1% over the ¥ Loan interest rate which the later will have
to pay as a result of the agreed currency swap whereas A Inc will reimburse
interest to B Inc only to the extent of 9%. Compute the opportunity gain or
loss arising out of this currency swap transaction. (10 Marks)
Q2. On 30th June 2021 when a forward contract matured for
execution you are asked by an importer customer to extend the validity of the
forward sale contract for US$ 100,000 for a further period of three months.
Contracted Rate US$1 = Rs.71.87
The US Dollar quoted on 30.6.21
Spot
Rs. 70.4800/Rs. 70.4900
Premium
July
0.1100/0.1300
Premium August
0.2300/0.2500
Premium
September 0.3500/0.3750
Calculate the cost for your customer in respect of the extension
of the forward contract.
Rupee values to be rounded off to the nearest Rupee.
Margin 0.080% for Buying Rate
Margin 0.25% for Selling Rate
Q3. The US dollar is selling in India at Rs.75.50. If the
interest rate for a 6months borrowing in India is 12% per annum and the
corresponding rate in USA is 6%.
·
Do you expect that US dollar will be at a premium or at discount
in the Indian Forex Market? (5 Marks)
·
What will be the expected 6-months forward rate and
premium/discount for US dollar in India? (5 Marks)
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