IV Sem. M.B.A. (Day)NI Sern. M.B.A.

(Evening) Examination, July/ August 2006 (Up dated Scheme) MANAGEMENT (Paper - F - 4) International Financial Management Time : 3 Hours SECTION - A (6x2=12) 1. Answer any six questions briefly: a) What do you mean by soft or wea k and hard or strong currency ? b) What is BOP ? c) What is interest rate parity ? d) Explain the terms, with examples, Bid quote and Ask quote. e) What is the basic difference between a put on British pounds sterling and call on sterling ? f) Explain the meaning of "Cross - rate consistency". g) Define tbe terms "hedg ing" and "currency risk. h) What is the essence of the theory of comparative adv antage ? i) What do you mean by political risk ? j) What is dollarisation ? Max. Marks : 75 SECTION - B Answer any four questions: (4x5=20) 2. What are the five basic mechanisms for establishing exchange rates ? How does each work ? 3. Why did the fixed exchange rate regime of 1945-1973 eventually f ail ? 4. What are the arguments against a firm pursuing an active currency risk management programme ? 5. HOW a MNE minimize its translation and transaction exp osure simultaneously ? can 6. What are tha benefits of achieving a lower cost an d greater availability of capital ? 7. What are a country's objectives when dete rmining tax policy on foreign source income ? SECTION - C Answer any three quest ions: (3x10=30) 8. Spot and 180 - day forward exchange rates of several major currencies are giv en below. For each pair, calculate the percentage premium or discount expressed as' annual rate. P.T.O.

European Euro: British Pound: Japanese Yell Swiss Franc Hongkong dollar Ouoted spot rate $ 0.80001 $ 1.562 I & Y 12000/$ SF 1.6000/$ HK $ 8.00001$ 180 dav forward rate $ 0.8160/ $ 1.5300/ Y 118.00/$ SF 1.6200/$ HK $ 7.8000/$ 9. Assume a call option on euros is written with a strike price of $ 0.94001 at a p remium of 0.9000 per euro ($ 0.00901~)and with-an expiration date three months f rom now. The option is for e 100,000. Calculate your profit or loss if you exerc ise before maturity at a time when the euro is traded spot at: b) $ 0.9200/ c) $ 0. 9400/ d) $ 0.96001~ f ) $ 1.0000/ . g) $ 1.0200/ 10. Define International Fisher effect. Explain to what extent do emperical test s confirm that the international Fisher effect exists in practice. 11. What are th e main disadvantages for a firm located in an illiquid market and also in a segm ented market ? 12. a) Explain the OL1 paradigm in relation to FDI. b) Explain th e behavioural approach to FDI. SECTION - D (1x13=13) 1 3. On checking telerate s creen, you see the following exchange rate and interest rate quotes: Currency Do h Swiss Franc 90 Day Interest rate (annualized) Spot rates . 90 Day Forward Rates $0.726-32 4.99% - 5.03% 3.14% - 3.19% $0.711-22 a) Can you find an arbitrage opportunity ? b) What steps must you take to capita lize on it ? c) What is the profit per $ 1,000,000 arbitrages ?

IV Sem. M.B.A. (Day)NI Sem. MJ3.A. (Eve.) Examination, JulyIAugust 2005 (Updated Scheme) F-4: FINANCE International Financial Management Time: 3 Hours Max. Marks: 75 Instruction: Use of calculators permitted. SECTION -A Answer any six of the following questions. Each question carries two marks. (6x2=12) 1. a) What is current A/c generally composed of ? b) Distinguish between spot and forward market. c) What is currency call option ? d) Explain b riefly International Fischer Effect. e) Who are the participants in the foreign exchange market ? f) Define translation exposure. g) The US dollar-Thai Bath rate is: US $ 0.2339Bath and the US dollar Indian Rup ee exchange rate is: US $ 0.2538lRs. What is RsBath exchange rate ? h) Different iate between depreciation and devaluation. SECTION - B Answer any four of the fo llowing questions. Each question carries 5 marks. (4x5=20) 2. Explain purchasing power parity principle and the rationale behind it. 3. An Importer has purchased from France goods worth 50,000 ffr. There is no quo te available for Rs versus ffr. The quotes available are: i) US$ = Rs. 45.05110 and ii) US $ = ffr 5.1025150 What is the value of this transaction in Rupee term s ? 4. Explain coupon swap with the.help of an example. 5. Distinguish between f utures and options. P.T.O.

6. Explain straddle with the help of an example. 7. Given the following data Sopt rate 1$ = Rs. 42.00 10 6 month forward rate 1$ = Rs. 42.8020 Annualised Interest rate on 6 month 'Rupee: 1.2% Annualised Interest rate on 6 m onth US $ : 8% Calculate Arbitrage possibilities. SECTION - C Answer any three o f the following questions. Each question carries 10 marks. (3x10 = 30) 8. What d o you understand by the term "International Cash Management" ? Briefly elucidate its objectives. 9. Identify factors to be considered when assessing country risk. Briefly elabor ate on how each factor can affect the risk to the MNC. 7 f 4 1 10. Company A wishes to borrow 10 million at a fixed rate for 5 years and has be en offered either 11% fixed or six month LIBOR + 1%. Company B wishes to borrow 10 million at a floating rate for 5 years and has been offered either 10% fixed or 6 month LIBOR + 0.5%. + . 4 1 '1 i 4 8 a) How do they enter into a swap arrangement in which each benefit equally ? b) What risks did this arrangement generate ? 11. Farm products is the Canadian aff iliate of a US manufacturing company. Its balance sheet in thousands of Canadian dollars (C $) for January 1, 2001 is shown below. The January 1,2001 exchange r ate was C $ 1.6 1 US dollar. Farm Products Balance Sheet (Thousands of C$) 3 h < 5 J ?1 Assets Cash Account Receivable Inventory C $ 1,00,000 C $2,20,000 C $3,20,000 Liabilities and Networth

Current Liabilities C$ Long term Debt Capital and Stock 60,000 C $ 1,60,000 C $ 6,20,000 4 I 1 Net plant and equipment C $2,00,000 Total C $8,40,000 a) Determine farm products accounting exposure on January 1, 2001 using the curr ent rate method/monetary and non monetary method. b) Calculate farm products con tribution to its parents accounting loss if the exchange rate on December 3 1,20 01 was C $1.8 per US dollar. Assume all accounts remain as they were at the begi nning of the year. ? 9 J 1 i

12. While you were visiting London, you purchased Jaguar for (GBP) 35000 payable in three months. You have enough cash at your bank in New York city which pay 0. 35 percent interest per month. Compounding monthly to pay for the car. Currently the sopt exchange rate is. $1.45/ and the three month forward exchange rate is $1 .40/. In London, the money market interest rate is 2.0 percent for a three month i nvestment. There are two alternative ways of paying for your Jaguar. i) Keep the funds at your bank in the United States and buy 35000 forward. , ii) Buy a certa in amount of Pound spot today and invest the amount in the UK for three months s o that the maturity value becomes equal to & 35000. Evaluate each payment method . Which method would you prefer ? Why ? F r SECTION - D (Compulsory) (1x13=13) 13. Case study The Sports Exports Company converts Britis h Pounds into Dollars every month. The prevailing spot rate is about $1.65 per p ound, but there is much uncertainty about the future value of the pound. Jim Log aw, owner of the Sports Exports Company, expects that British inflation will ris e substantially in the future. In previous years when British inflation was high , the pound depreciated. The prevailing British Interest rate is slightly higher than the prevailing US interest rate. The pound has risen slightly over each of the last several months Jim wants to forecast the value of pound for each of th e next 20 months. i) Explain how Jim could use technical forecasting to forecast the future value of the Pound. Based on the information provided, do you think that a technical f orecast of the Pound would reflect future appreciation or depreciation in the Po und ? ii) Explain how Jim could use fundamental forecasting to forecast the futu re value of the Pound. Based on the information provided do you think that a fun damental forecast of the Pound would reflect appreciation or depreciation of the Pound. iii) Explain how Jim could use a market based forecast to forecast the f uture value of the Pound. Do you think the market based forecast would reflect a ppreciation or depreciation or no change in the value of Pound ?

IV Semester MBA Examination, October 2004 (Updated Scheme) F 4: INTERNATIONAL FI NANCIAL MANAGEMENT Time: 3 Hours SECTION -A Max. Marks: 75 I. Answer six questions: a) What is Bid and ask rate ? b) What is Covered Interest Arbitrage ? c) Explain Spot and Forward Rate. d) What is Clean and Dirty Float ? e) Define collars in the context of Interest Rates. f) What is marking to market ? g) Explain Direct and Indirect Quotations. h) What is PPP '? SECTION - B Answer four questions: (6x2 = 12) 2. Mention the key areas of International Cash Management. 3. What are the Special Drawing Right ? Why they are created ? 4. In Balance of Payment what are debit and credit transactions ? What are the broad categories o f International Transactions classified as debits and credits ? 5. Why do cornparlies involved in International Trade have tc kcigz thzir foreig n exchange exposure ? 6. Explain the following: a) Interest Rate Parity Theory b) International Fisher Effects. 7. FDI flows into India are around 3.4%, which is very low when compared to Chin a and Hong-Kong. What policy measures do you think the regulatory authorities sh ould initiate to attract more FDI flows into the country ? P.T.O.

A - A ." SECTION - C ' I 4 I rh (3x10 = 30) I I i( , Answc;r three questions: "; 8. V 1 y is it important to study International Financial Management ? How is it 41 different from Domestic Financial Management ? 9. Explain how these exchange rate systems functions: a) gold exchange standard b) pegged exchange rate C) fixed exchange rate and d) floating exchange rate 4 7 '3 'i $ 10. What are the basic differences between forward and future contracts and betw een future and options contracts ? 11. Given the following data: Spot Rate Rs. 4 6.0010 = 1 dollar 6 months forward rate Rs. 46.8020 = 1 dollar Annualised intere st rate on 6 months rupee: 12% Annualised interest rate on 6 months dollar: 8% C al::ir!ate the arbitrage possibilities. 12. a) Explain the origlin and developme nt of Euro currency market. b ) Highlight the reasons for lower borrowing costs in the Euro currencv market. i '1 (A SECTION - D 13. Case study compulsory: Baltimore Tile company (US) is considerin g investing 50,000,000 Rupees in India to create a wholly owned Tile manufacturi ng plant to export to the European market. After five years, the subsidiary woul d be sold to Indian Investors for Rs. 100,000,000.A proforma income state for th e Indian operations predicts the generation of Rs. 7,000,000 of annual casn t ~

o w s f-ylas -. Annual sales revenue: Less cash operating expenses: Less depreciation: Income be fore interest and taxes Less Indian taxes at 50% Net Income Add bank depreciatio n Annual cash flow Rs. 30,000,000 17,000,000 1,000,000 12,000,000 6,000,000 6,000,000 -

-3OE - 2015 The icitial inlrestment will be made sn 31s: E x . 2302 and cash flows will occu r on December 3 1 of each succeeding year. Annual cash flows Dividends to Baltim ore Tile from India will equal 75% of Accounting Income. The US corporate tax rate is 40% and the Indian corporate tax ratio is 50%. Beca use the IndianTax ratio is greater than the UsTax ratio, annual dividends paid t o Baltimore will not be subject to additional taxes in the United States. There are no capital gain taxes on the final sale. Baltimore Tile uses a weighted aver age cost of capital of 14% on domestic investments, but will add 6 percentage po ints for the Indian Investment because of perceived greater risk. Baltimore Tile forzcasts the Rupee/dollar exchange rate for December 3 1st on the next six yea rs to be: Year Exchange rate Rs. 50.00/$ Rs. 54.001 $ Rs. 58.00/$ Rs. 62.00/$ Rs. 66.001$ Rs. 7 0.00/$ What is the Net present value and whether the Investment in the Indian subsidiar y is worth while ?