JUNE 2012 EXAMINATION
FM 04
INTERNATIONAL FINANCE
Time: Three Hours Maximum Marks: 100
Note:
1. The paper is divided into three sections: Section A, Section B and Section
C.
2. There are seven questions in Section A of 10 marks each. Attempt any
four.
3. Section B has 5 questions of 15 marks each. Attempt any three.
4. All the questions of Section C (Case Study) are compulsory. This section is of
15 marks.
Marks will be awarded for right procedure also in numerical questions.
Section - A 10 marks each
1. Following rates are available in forex market:
GBP/INR : 84.16 USD / INR: 45.5 and GBP / USD 1.95, Find out the arbitrage gain
if possible.
2. What is arbitrage and give its types with the help of examples?
3. Discuss USD dollar as international currency and can it be replaced?
4. Evaluate the role of IMF in the present economic crises with specific reference to
EURO Zone.
5. What are the reasons of collapse of bretton and Wood system?
6. The current Spot rate USD / INR: 45 and 3 month forward rate is USD / INR: 44.50.
the risk free rate of interest in US 6% India 8%. An investor can borrow the 45 million
INR and 1 million USD. Determine whether IRP hold or not. if not than how to realize
the profit through covered interest rate arbitrage?
7. What are different methods of discounted cash flow of capital budgeting for
Multinational Companies (MNCs)? Explain.
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Section-B
1. The following are the interest rates and the spot rates of an exchange:
Spot USD / INR: 49.45 and 49.50, Interest rate in India 11% and 11.25 % p.a
Interest rate in US 8% and 8.25 % p.a and If the IRP than what are the forward quotes?
2. What are the different exposures faced by MNC and how will you measure translation
and economic exposure?
3. (a) Explain SNAKE in Euro zone?
(b) Explain Plaza and Jamaica agreement ?
4. A US based MNC has sold its products to a firm in UK of 10 million USD for 3
months credit. The current Spot rate is USD/ GBP 0.5252. it is expected that the USD
will depreciate by 5% during this period. And the forward rate is quoted as USD/ GBP
0.5400. What is expected loss to the British firm and how can it be hedged?
5. (a) Spot rate of the USD was Rs. 47.7650 on Feb. 28 and the call rate premium of the
march (call option on USD with strike price 48/$ and expiring on 28 th March) was Rs.
0.2500/$.
(i) is the call option in the money, at the money, or out the money?
(ii) Compute the intrinsic value of the call.
(iii) If the exchange rate settlement rate on 28 th march is Rs. 48.3520, what
percentage return on the investment, if the investor has purchased a put option or the call
option.
(b) write a note on currency options. 10, 5
Section C Case Study
Company XYZ and ABC are in the need of loan . they approached their banks which
provided them following rate of interest:
Company ABC XYZ
USD (floating rate) LIBOR+.5% LIBOR+2.5%
Japanees Yen (Fixed rate) 3% 3.25%
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XYZ wants to borrow dollars at floating and ABC wants to borrow Yen at fixed rate. A
bank arranges a SWAP and require 75 basis point spread and to give equal benefit to both
firm. As a financial advisor you advise them whether this will be a good SWAP deal for
them or not.
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