DFM 04
INTERNATIONAL FINANCE
Assignment – I
Assignment Code: 2017DFM04B1 Last Date of Submission: 15th November 2017
Maximum Marks: 100
Attempt all the questions.
SECTION – A (25 marks for each question)
1. a) Explain how liberalisation and globalisation have increased the importance of
International Finance. [12]
b) What is FDI (foreign direct investment)? What are its implications for domestic firms in developing countries? [13]
2. What is translation exposure? What are the guidelines set down for Indian MNCs that want to convert the financial statements of their overseas affiliates into Rupees so as to prepare consolidated financial statements? [5+20]
Section-B (50 Marks)
Case Study
Syntex Ltd. has to make a US $5 million payment in three months’ time. The required amount in dollars is available with Syntex Ltd. The management of the company decides to invest them for three months and following information is available in this context:
- The US$ deposit rate is 9% per annum
- The sterling pound deposit rate is 11% per annum
- The spot exchange rate is $1.82 / pound
- The three month forward rate is $1.80 / pound
Answer the following questions:
a) Where should the company invest for better returns? [12]
b) Assuming that the interest rates and the spot exchange rate remain as above, what
forward rate would yield an equilibrium situation? [12]
c) Assuming that the US interest rate and the spot and forward rates remain as above,
where should the company invest if the sterling pound deposit rate were 15% per annum? [13]
d) With the originally stated spot and forward rates and the same dollar deposit rate,
what is the equilibrium sterling pound deposit rate? [13]
DFM 04
INTERNATIONAL FINANCE
Assignment-II
Assignment Code: 2017DFM04B2 Last Date of Submission: 15th November 2017
Maximum Marks: 100
Attempt all the questions.
SECTION – A (25 marks for each question)
1. a) Critically evaluate the interest rate parity (IRP) theory. Is it valid when currency markets
in two countries are not integrated? [11]
b) Distinguish between:
(i) The Fisher equation and the Fisher Open condition
(ii) Purchasing power parity (PPP) and Interest rate parity (IRP) [7+7]
2. a) What is Multinational capital budgeting? List the complexities involved in budgeting for
a foreign project. [12]
b) Briefly explain the Adjusted Present Value (APV) method popularly used for project appraisal in Multinational projects. [13]
Section-B (50 Marks)
Case Study
An Indian software co. Inso Ltd. wants to acquire a US firm with a cost of $2 crore. For this purpose, it raises the required capital of Rs.90 (current exchange rate of Rs.45 /$) at 12%. The US acquisition is expected to yield 15% return. At the same time, a US engineering firm, USENG Inc. is negotiating a joint venture to contribute US $2 crore which promises to yield 15% return in India. USENG Inc. raises the required dollar at a cost of 8%. Assume that all the liabilities need annual payments, and conversion of currencies by the Indian and US firms is done annually.
You are a consultant and required to answer the following:
a) Examine the risk faced by Inso Ltd. and USENG Inc. if the:
i) Rupee appreciates to 44, 42, 40, 38 and 36 per $ over the next five years. [12]
ii) Rupee appreciates to 46, 48, 50, 52 and 54 per $ over the next five years. [13]
b) Show how a Financial swap arrangement between the two can help eliminate the risk of exchange rate fluctuations. [25]
INTERNATIONAL FINANCE
Assignment – I
Assignment Code: 2017DFM04B1 Last Date of Submission: 15th November 2017
Maximum Marks: 100
Attempt all the questions.
SECTION – A (25 marks for each question)
1. a) Explain how liberalisation and globalisation have increased the importance of
International Finance. [12]
b) What is FDI (foreign direct investment)? What are its implications for domestic firms in developing countries? [13]
2. What is translation exposure? What are the guidelines set down for Indian MNCs that want to convert the financial statements of their overseas affiliates into Rupees so as to prepare consolidated financial statements? [5+20]
Section-B (50 Marks)
Case Study
Syntex Ltd. has to make a US $5 million payment in three months’ time. The required amount in dollars is available with Syntex Ltd. The management of the company decides to invest them for three months and following information is available in this context:
- The US$ deposit rate is 9% per annum
- The sterling pound deposit rate is 11% per annum
- The spot exchange rate is $1.82 / pound
- The three month forward rate is $1.80 / pound
Answer the following questions:
a) Where should the company invest for better returns? [12]
b) Assuming that the interest rates and the spot exchange rate remain as above, what
forward rate would yield an equilibrium situation? [12]
c) Assuming that the US interest rate and the spot and forward rates remain as above,
where should the company invest if the sterling pound deposit rate were 15% per annum? [13]
d) With the originally stated spot and forward rates and the same dollar deposit rate,
what is the equilibrium sterling pound deposit rate? [13]
DFM 04
INTERNATIONAL FINANCE
Assignment-II
Assignment Code: 2017DFM04B2 Last Date of Submission: 15th November 2017
Maximum Marks: 100
Attempt all the questions.
SECTION – A (25 marks for each question)
1. a) Critically evaluate the interest rate parity (IRP) theory. Is it valid when currency markets
in two countries are not integrated? [11]
b) Distinguish between:
(i) The Fisher equation and the Fisher Open condition
(ii) Purchasing power parity (PPP) and Interest rate parity (IRP) [7+7]
2. a) What is Multinational capital budgeting? List the complexities involved in budgeting for
a foreign project. [12]
b) Briefly explain the Adjusted Present Value (APV) method popularly used for project appraisal in Multinational projects. [13]
Section-B (50 Marks)
Case Study
An Indian software co. Inso Ltd. wants to acquire a US firm with a cost of $2 crore. For this purpose, it raises the required capital of Rs.90 (current exchange rate of Rs.45 /$) at 12%. The US acquisition is expected to yield 15% return. At the same time, a US engineering firm, USENG Inc. is negotiating a joint venture to contribute US $2 crore which promises to yield 15% return in India. USENG Inc. raises the required dollar at a cost of 8%. Assume that all the liabilities need annual payments, and conversion of currencies by the Indian and US firms is done annually.
You are a consultant and required to answer the following:
a) Examine the risk faced by Inso Ltd. and USENG Inc. if the:
i) Rupee appreciates to 44, 42, 40, 38 and 36 per $ over the next five years. [12]
ii) Rupee appreciates to 46, 48, 50, 52 and 54 per $ over the next five years. [13]
b) Show how a Financial swap arrangement between the two can help eliminate the risk of exchange rate fluctuations. [25]
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