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th
Submit by 13 December 2010
Group - I 1. Describe the primary functions of the foreign exchange market. How do
global companies use the foreign exchange market to hedge against foreign
exchange risks?
1, 11, 21,
2. Briefly describe portfolio investments and foreign direct investment (FDI)
31, 41, 51,
How do they differ? What is international trade? Why does it occur?
18, 19, 20
3. Compare and contrast interest rate parity, purchasing power parity (PPP),
and the international Fisher effect (IFE).
4. Discuss the determinants of operating exposure. Explain the implications of
purchasing power parity for operating exposure.
4. The exchange rate uncertainty may not necessarily mean that firms face
exchange risk exposure. Explain why this may be the case
Group - IV 1. How are translation gains and losses handled differently according to the
current rate method in comparison to the other three methods, that is, the
current/noncurrent method, the monetary/nonmonetary method, and the
4, 14, 24, temporal method?
34, 44, 54,
2. Explain the rationale of the PPP theory. Explain how you could determine
48, 49
whether PPP exists. Describe a limitation in testing whether PPP holds.
3. What is the intuition behind the NPV capital budgeting framework? What
makes the APV capital budgeting framework useful for analyzing foreign
capital expenditures?
4. Discuss and compare hedging transaction exposure using the forward contract vs.
money market instruments. When do the alternative hedging approaches produce the
same result?
Group - V 1. Explain the international Fisher effect (IFE). What is the rationale for the
existence of the IFE? What are the implications of the IFE for firms with
excess cash that consistently invest in foreign Treasury bills? Explain why the
IFE may not hold.
5, 15, 25,
2. Briefly define each of the major types of international bond market
35, 45, 55,
58, 59 instruments, noting their distinguishing characteristics. Also discuss why
Eurobonds make up the lion’s share of the international bond market.
3. Discuss the determinants of operating exposure. Explain the implications of
purchasing power parity for operating exposure.
4. How would you incorporate political risk into the capital budgeting process
of foreign investment projects?