FM04
International
Finance
(For
CNM Cases)
Assignment – II
Assignment
Code: 2016FM04A2 Last Date of Submission: 30th
April 2016
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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