Department of Management Studies and Research

MBA IV Sem -III Internal Exams, April 2014

Subject: International Financial Management
Subject Code : 12MBAFM426

Time : 1:15 mns

Marks: 30

Answer any one of following questions. Question number 3 is compulsory

1. (a) What is SWIFT?

3 Marks

(b) Havells Indian Ltd has 50,000 worth debts outstanding at Spain. The amount is
likely to be received in 3 months. It is given that spot 1= Rs 61.1826 and 3 months
forward rate 1= Rs 61.5225 expected euro rate in 3 month is Rs 60.2512.
a) What is the rate applicable if Havells India wishes to hedge?
b) What is the receipt to Havells India if they go for forward hedge?
c) If Havells go for forward hedge and the Spain party fails to make payment
what is the net gain or loss to Havells Ltd.
7 Marks
(c) A foreign exchange dealer has assumed the following information for a particular
bank. the quoted price is given below.
Value of Canadian dollar in USD $ 0.90; Value of New Zealand dollar USD $ 0.30;
Value of Canadian dollar in New Zealand dollars $ 3.02
i) On the basis of the above information. Is triangular arbitrage possible? If yes, explain
the steps and calculate the profit from this strategy, if you had $ 1,50,000.
ii) What market forces would occur to eliminate the further possibilities if triangular
Arbitrage?
10 Marks
2. (a) Define transaction Exposure?

3 Marks

(b) In Australia cricket bats sell for AUD 40 while in India they sell for only Rs 1,000.
i) According to the theory of PPP, what should be the RS/$ rate?
ii) If the price of cricket bats in the Australia goes up to AUD 44 each in one year and
the price of cricket bats in India goes up to Rs 1,074 each, what is the one year forward
Rs/AUD rate?
7Marks
(c) Suppose a French Importer is to pay $10,000 in 3 months time. The exchange rates are
being quoted as follows.
Spot FFr 5.6/$
3 Month forward FFr 5.8/$
From the given data show that forward cover profitable or not.
10 Marks
3. Given the spot exchange rate $1=FFr 7.05
Particulars
$ Interest rate (Annual)
French franc Interest rate (annual)
Forward FFr/$
Forward $ premium

3Months
11.5%
19.5%
A
B

6Months
12.25%
C
D
6.5%

10 Marks
1Year
20%
7.5%
7.5
F