MBA/Even/FM405/2018-19(Regular)

Enrolment No.

University of Engineering & Management, Jaipur

(Established by Act of State Govt. & u/s 22 of UGC Act, Ministry of HRD, Govt. of India)

University Examination
MBA, 2nd year, 4th Semester
Subject Code-FM 405 Total Marks-100
Subject-INTERNATIONAL FINANCE Time Duration -3hrs.
All the answers should be in brief and to the point.
Strike off all the blank pages of copy, after completing your work.
The students are advised not to write anything on the question paper other than Enrolment No.
Group-A
(Answer any fifteen questions) [15*1=15]
1. Choose the correct option:
a. The exchange system followed in India is known as
i) Fixed peg system
ii) Crawling peg system
iii) Managed floating system
iv) Independent floating system
b. IMF stands for
i) International Money Flow
ii) International Monetary Fund
iii) Indian Monetary Flow
iv) International Money ( Exim ) Flow.
c. Classical economists viewed that BOP adjustment
i) was automatic
ii) was possible through devaluation
iii) both (a) and (b)
iv) none of these
d. Interest-rate parity refers to the concept that, where market imperfections are few

i) The same goods must be sold for the same price across the countries
ii) Interest rates across the countries will eventually be the same
iii) There is an offsetting relationship between interest rate differentials and
differentials in the forward Spot exchange market.
iv) There is an offsetting relationship provided by costs and revenues in similar
market environments
e. Which of the following is a legitimate reason for international investment ?
i) Dividends from a foreign subsidiary are tax exempted in the United States
ii) Most governments do not tax foreign corporations
iii) There are possible benefits from international diversification
iv) International investments have less political risk than domestic investments.
f. Average investment for ARR:
i) ½ (initial investment+ salvage value)
ii) ½ (initial investment- salvage value)
iii) ½ (initial investment)
iv) None of these
g. Which of the following would increase the likelihood that a company would increase
its debt ratio in its capital structure ?
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i) An increase in costs incurred when filing for bankruptcy

ii) An increase in the corporate tax rate
iii) An increase in the personal tax rate
iv) A decrease in the firm's business risk
h. A transaction through which a firm cells a portion of its assets to another firm is called
i) Absorption
ii) Consolidation
iii) Spin off
iv) Divestiture
i. China hedges its currency with its other currency
i) Hong Kong Yuan
ii) Hong Kong Macaw Pataka
iii) Hong Kong Dollar
iv) Hong Kong Pound
j. Which A spin-off differs from a split-up in that?
i) a spin-off is financed using leverage whereas a split-up is not
ii) the parent company continues to exist in a spin-off while it ceases to exist in a
split-up
iii) a spin-off increases corporate value whereas a split up decreases it
iv) a spin-off is not hostile while a spilt-up is
k. What are the motives behind a swap transaction ?
i) Quality spread
ii) Interest risk management
iii) Currency risk management
iv) All of these
l. In which option does the buyer get the right to buy the underlying asset?
i) Call option
ii) Put option
iii) American option
iv) European option.
m. The forward market is especially well-suited to offer hedging protection against
i) Translation risk exposure
ii) Transaction risk exposure
iii) Political risk exposure
iv) Taxation.
n. Feature of equity shares:
i) Risk capital
ii) Unstable dividend
iii) Variable market price
iv) All of the above
o. Factors affecting dividend policy
i) Nature of earnings
ii) Liquidity of funds
iii) General state of economy
iv) All of above
p. which one is a dividend model?
i) Modigliani model
ii) Rechard model
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iii) Porters model

iv) Bolts model
q. If an importer has to buy US dollars from the bank, he has to buy it at the ?
i) Buying rate of the bank
ii) Selling rate of the bank
iii) Average of (a) & (b)
iv) None of these
r. Which balance of the balance of payment is influenced by the invisibles ?
i) Trade balance
ii) Current Account balance
iii) Capital Account balance
iv) None of these..
s. Country A provides floor relief to country B. What kind of transfer it is ?
i) Requited physical transfer
ii) Requited financial transfer
iii) Unrequited transfer
iv) No transfer at all
t. Floating rate is determined by
i) Government of the country
ii) On the basis of value of some other currency
iii) By the interaction of demand and supply of the currency
iv) None of these
Group-B
(Answer any five questions) [5*5=25]
2. What is the difference between maximizing stock holders, wealth and stock prices?
3. Briefly explain the procedure to be completed for GDR issues.
4. Write with examples the process of interest rate swap.
5. Describe the arms length method of transfer pricing.
6. Discuss in brief the features or characteristics of Foreign Exchange Market.
7. Briefly state about the various types of exchange rates based on delivery.
8. Explain how forward can be useful for managing risks.
9. What are the different factors influencing the exchange rate for a currency ?:
10. What are the various Internal Hedging Strategies adopted by a company having a number
of Subsidiaries in different countries ?.
Group-C
(Answer any four questions) [4*15=60]
11. Translate the following Balance Sheets of the two subsidiaries of ABC Inc. ( a US MNC )
into US dollars, using Monetary, Non-monetary and the Current methods of translation :
Assume the following exchange rates :
12/31/2008 £1.00 = US $ 1.40 US $ 1.00 = FF 7.25
12/31/2008 £1.00 = US $ 1.05 US $ 1.00 = FF 9.00
Show also how the parent company will reflect the exchange gains ( losses ) in its
consolidated statements, using the monetary and non-monetary methods as against the
current method.
12. What are the different factors influencing the exchange rate for a currency ?
13. The six-month rate of Canadian $ is 9% when the six-month interest for the US $ is
6.75%. At the same time the spot Canadian $ quotation in New York is US $ 0.9100 and
the six-month forward rate is US $ 0.9025
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i) Is interest rate parity holding ? Why ?

ii) If not, how could advantage be taken of the situation ?
iii) If a large no of operators decide to do the arbitrage suggested
under (b), what will be the effect upon spot and forward quotations
and upon interest rates for the two currencies ?
14. a) What do you understand by Foreign Exchange Exposure ? What are the different types
of Exposure ?
b) Why do the companies involved in international trade have to hedge their foreign
exchange exposure ?
15. Write short notes on any two of the following :
a) Purchasing Power Parity Theory.
b) Asian Development Bank
c) International Financial Corporation
d) Participants in Foreign exchange market.
16. PXE Company is a US firm that exports products to the United Kingdom. The FX revenue
exposure to the pound is 1. Ignoring taxes and depreciation, PXE has revenues of $800,
costs of $600, and operating cash flow of $200. Eighty per cent of PXE’s operating costs are
stable in US dollars. The other 20% have an FX cost exposure to the pound of 1. Use equation
(5·3) to approximate PXE’s FX operating exposure to the pound. What would be the
FX operation exposure if all the costs are stable in US dollars ?
17. a) What are the major reasons behind cross-border mergers ? What do you mean by a
conglomerate merger ? How is it different from horizontal or vertical merger ?
b) What are the different methods of valuing a company to be acquired.

18. Write short notes on any three of the following :

a) Trade Deficit

b) GDP

c) Interest Rate Parity Theory

d) Export Subsidy

e) Free Trade Agreement