1.

Convert the following rates into indirect quote outright rates (forward rates) and indicate their spreads : Spot Rs / $ Rs / 35.6300/25 55.2200/35 1-month 20/25 40/30 3-months 25/35 50/35 6-months 30/40 55/42

2. If the exchange rate at the end of 2008-09 is Rs. 43.91 / 1 US $ and if the rate of inflation in India & USA during 2009 10 is 7 % and 4 % respectively, find out ( a) inflation rate differential between the two countries and (b) the exchange rate at the end of 2009 10. 3. Find out the real interest rate if nominal interest rate is 10 % and the rate of inflation is 4 %. 4. If they exchange rate at end of 2004-05 is Rs. 43.91 / 1 US $ and if the rate of inflation in India and USA during 2005-06 is 7 % and 4 % respectively. Find out (A) Inflation rate difference between two countries (B) Exchange rate at the end of 2005-06. 5. If A= 5% (real interest rate), I = 8 % ( expected rate of inflation ) Then what is R ( nominal interest rate ). 6. Rate of inflation in India is 7 % and USA = 4 % interest rate in USA 6 %. Find out interest rate in India. 7. Spot Exchange rate 1 US $ = C $ 1.317 6 month forward 1 US $ = C $ 1.2950 6 month interest rate USA 10 %, Canada 6 % Work of the possibilities of arbitrage gain. 8. (a) Spot rate is Rs. 40 / US $ (b) 90 day forward rate is Rs. 39.50 / US $ (c) Interest rate on borrowing in India is 6 per cent P.A (d) Interest rate on deposit/investment in USA is 5 per cent P.A (e)A 90 day call option is having a strike price of Rs. 39.60 and premium of Rs.0.05 per dollar. (f) A 90 day put option is having exercise price of Rs. 39.80 and a premium of Rs. 0.05 per dollar. (g) Spot rate on the 90th day is Rs. 39.80 US $.an Indian exporter exports goods worth us $ 1,000 to USA and export the proceeds are expecting to be received after 90 days. The exporter is expecting changes in the exchange rate. He is thinking of selecting a particular alternative from the above data for the purpose of edging. Decide about an alternative which is advantageous / preferable to the exporter. 9. Find out the translation loss/gain on the basis of the following data supplied by the Indian subsidiary to its parent unit in the USA. [ Loss / gain based on all the methods ] (Amount: Rs. Million) Liabilities Current liabilities Share Capital Bonds Retained earnings 400 1000 600 400 Assets Cash Marketable Securities Debtor Inventory 100 100 200 300

Land and Building Plant and Machinery Furniture and Fixtures

600 800 300

10. India is expecting 8 % inflation rate during the next one year compared to 3 % inflation rate in USA. Exchange rate at the beginning of the year 1 US $ = Rs. 40. What is the exchange rate at the end of the year according to International Fishers Effect? 11. Exchange rate at the end of 2008-09 is 1 US $ = 43.91. Rate of inflation in India and USA during 2008-09 is 7 % & 4 % respectively. Find out (a) inflation rate differential between 2 countries, 3% and (b) the exchange rate at the end of 2009-10. 45.23 12. Calculate the 3 month forward rate if spot rate is 1 US $ = Rs. 46 and interest rate in India and USA is 6 % & 3 % respectively. 13. Spot rate $ 1 6 month forward rate = = Rs.42.0010

Rs.42.8020

Annualised interest rate on 6 month rupee 12 % Annualised interest rate on 6 month dollar - 8 % Calculate the arbitrage possibilities. Assume an investment of $ 1000.

14. A foreign exchange dealer in India needs 2,00,000 US $ in 90 days. He wishes to hedge this payables position. 90 day India interest rate 7 % 90 day US interest rate 5 % Spot rate of 1 US $ = Rs. 43.60

90 day forward rate of US $ = Rs. 45.20

Should the dealer go for forward contract or money market hedge. Which one is beneficial to him?

15. Farm Products is the Canadian affiliate of a US manufacturing company. Its balance sheet in thousands of Canadian dollars for December 31, 2009 is as under. Assets
Cash - C $ 1,00,000

Liabilities
Current Liabilities Capital Stock Long Term debt - C $ 60,000 6,20,000 1,60,000

A/c receivable - 2,20,000 Inventory 3,20,000 Plan&Equipment 2,00,000 ___________ C $ 8,40,000 _____________ Historical rate 1 US $ = 1.6 C $

_____________ C $ 8,40,000 ______________

 Current rate 1 US $ = 1.8 C $ Determine farm products accounting exposure on Jan 2010 using the Current rate method only 1116000 Calculate farm products contribution to its parents accounting loss if the exchange rate on December 31, 2009 was 1 US $ = 1.8 C $ [ Current rate ]. 124000

16. Calculate the 3 month forward rate if spot rate is 1 US $ = Rs. 46 and interest rate in India and USA is 6 % & 3 % respectively.

17. Exchange rate at the end of 2008-09 is 1 US $ = 43.91. Rate of inflation in India and USA during 2008-09 is 7 % & 4 % respectively. Find out (a) inflation rate differential between 2 countries and (b) the exchange rate at the end of 2009-10.

18.

Spot rate $ 1

Rs.42.0010 Rs.42.8020

6 month forward rate =

Annualised interest rate on 6 month rupee 12 % Annualised interest rate on 6 month dollar - 8 % Calculate the arbitrage possibilities. Assume an investment of $ 1000.

19. A foreign exchange dealer in India needs 2,00,000 US $ in 90 days. He wishes to hedge this payables position. 90 day India interest rate 7 % 90 day US interest rate 5 % Spot rate of 1 US $ = Rs. 43.60

90 day forward rate of US $ = Rs. 45.20

Should the dealer go for forward contract or money market hedge. Which one is beneficial to him? 20. India is expecting 8 % inflation rate during the next one year compared to 3 % inflation rate in USA. Exchange rate at the beginning of the year 1 US $ = Rs. 40. What is the exchange rate at the end of the year according to International Fishers Effect?