SOUTHEAST UNIVERSITY

School of Business Studies

MBA (Friday) Program
Term Final Examination, Semester: Spring 2020
Course Code: FIN 6154 or 654, Title: International Finance
Section: 3
Full Marks: 40
Md. Abdul Hai Id: 2019210004103
Name: _______________________________________ ID No.________________________

[There are six questions answer any four] Marks: (4 X 10 = 40)

1. (a) Bangladesh is experiencing a high growth in international trade over the last two decades. What are
the reasons behind the high growth in international trade?
(b) How is a country’s economic well-being enhanced through free international trade in goods and
services?
2. Noman Fabrics Limited receives around 10 lacsEuro each month as payment for the garments that it
exports to Germany. For manufacturing the garments, Noman Fabrics imports raw materials from China
for which it has to make payment around USD 5 lacs each month. It anticipates that the Euro will
depreciate over time against BD taka.
(a) On March 25 Noman Fabrics entered into a 180 days forward contract with Exim Bank to purchase
USD 3 Lacs to make payment for its import from China. However, export order from Germany was
cancelled on June 05 due to Corona Pandemic and Noman Fabrics subsequently cancelled the import
from China. What should Noman Fabrics do with its forward contract?
(b) Noman Fabrics is considering a request from its subsidiary Noman Traders in India. The subsidiary
wants to take a loan of USD 10 Lacs. It will pay back the money in 6 months. The Financial Adviser of
the company informed the management that there is a risk that exchange rate might fluctuate and
the company might lose substantially. Examine the facts and give your opinion.
(c) How can Noman Fabrics use currency options to hedge against exchange rate risk?
(d) Board of Directors of the company is concerned that the Euro may depreciate substantially over the
next month, but it also believes that the Euro could appreciate substantially if specific situations
occur. Should the company use currency futures or currency options to hedge exchange rate risk?
3.
(a) On the basis of Government control there are different exchange rate systems like fixed or floating
exchange rate. Which exchange rate system is followed by Bangladesh?
(b) What is the impact of a weak home currency (BD Taka) on the economy of Bangladesh, other things
being equal? What is the impact of a strong home currency on the economy of Bangladesh, other
things being equal?
(b) How Bangladesh Bank can use intervention to change the value of Taka against US Dollar?

4. (a) Assume that the US dollar’s spot rate is BDT 85.00 and that the US and Bangladesh inflation rates are
similar. Then assume that Bangladesh experiences 4 percent inflation, while the United States experiences
3 percent inflation. According to PPP, what will be the new exchange rate of US dollar after it adjusts to
the inflationary changes?
(b) Explain the theory of purchasing power parity (PPP). Based on this theory, what is a general forecast of
the values of currencies in countries with high inflation?
(c) Explain why PPP does not hold.
5. (a) Assume the following information:

Quoted Price
Value of Euro in Bangladesh Taka BDT 95.89
Value of US dollar in Bangladesh Taka BDT 84.94
Value of British Pound in US Dollars USD 1.15
Given this information, is triangular arbitrage possible? If so explain the steps that would reflect triangular
arbitrage, and compute the profit from this strategy if you had BDT 1,00,00,000 to use.

(b) Assume the following information:

Spot rate of US Dollar $ 84.94

180-day forward rate of US Dollar $ 85.22
180-day Bangladesh interest rate 8% (Deposit rate) and 11% (Lending rate)
180-day U.S. interest rate 3.5% (Deposit rate) and 5% (Lending rate)
Given this information, is covered interest arbitrage worthwhile for a Bangladesh investor who takes a
loan of US$ 10,00,000 from JPMorgan Chase ( a bank in USA). Explain with calculation.

6. (a) Discuss the impact of corona virus on the international trade of Bangladesh.
(b) What steps should be taken to overcome the negative impact on international trade?