*71878/C020* (1) 71878/C020

Reg. No.

III Semester M.Com Degree Examination,Dec./Jan. -2019/2020

International Financial Management
(Regular)
Paper: 3.2

Time : 3 Hours Maximum Marks : 80

SECTION - A
Answer any Ten sub-questions from the following. Each sub-question carries 2 marks. (10×2=20)
1. a) Who is global financial manager?
b) Define the term leads and lags.
c) State any three merits of forward contract.
d) Give the meaning of option contract.
e) What is direct quotation?
f) Give the meaning of translation gain.
g) What is bilateral netting?
h) What do you mean by PPP?
i) Give the meaning of SWAP.
j) What are hard currencies?
k) What is triangular arbitrage?
l) What do you mean by Uncertainty?

SECTION - B
Answer any Three questions from the following. Each question carries 5 marks. (3×5=15)
2. Explain the role of international financial management in international business.
3. What are the salient features of interest rate and expectation theories?

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4. The exchange rate and forward rate of rupee against US dollar on 2019 December is given below:
Spot rate US dollar 1 = Rs. 71.50
1 month forward - 4.12%
3 month forward - 4.05%
6 month forward - 4.06%
You are required to
(a) Forward rate
(b) Forward premium
(c) SWAP
5. The following data were extracted from the ABC organization about the cash requirements of an MNCs
and its affiliates
Location Mean expected cash Needs Standard deviation
(Rs. Lakhs) (Rs. Lakhs)
Parent 1000 65
Affiliate - x 550 35
Affiliate - y 540 45
Affiliate - z 280 52
The MNCs wishes to indemnify the cash needs of the parents and affiliates can be met on time.
You are required to calculate the followings
a) How much cash whould be needed by each entity under decentralize cash management system?
b) How much savings whould be accrued from a centralized system?
6. The spot exchange rate between the US dollar and Indian rupee 0.014/DM. The dollar deposit rate is
12% and the DM deposit rate is 7%. From this you are required to compute expected forward rate for
five years, if interest rate theory hold good.

SECTION - C
Answer any Three questions from the following. Each question carries 15 marks. (3×15=45)
7. Explain nature, role and scope of international financial management.
8. What are the foreign exchange risk management techniques? Describe.

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9. The following information takeout from the foreign exchange market

a) Spot rate for Indian rupee- Rs.70/US$
b) One year forward rate for Indian rupee - Rs. 66.5/US$
c) Expected spot rate in one year for Indian rupee - Rs. 66.5/US$
d) Expected rate of inflation for one year - India 5% and USA 10%.
e) Interest rate on one year government securities - India 7% and USA 12%.
You are required to prove that there is a global equilibrium in capital, commodity and foreign exchange
market.
10. Diamond limited is a Canadian affiliate of USA manufacturing company and its balance sheet on
1-1-2019 as follows:
Liabilities Amount (can$) Assets Amount (can$)
Share Capital 1800000 Cash 1300000
Creditors 1100000 Bills receivable 1100000
Bills payable 1100000 Inventory 1150000
Long term Debt 1300000 Plant & equipment 1750000
5300000 5300000
The exchange rate on 1-1-2019 was Can$ 1.4/US$ and on 31-12-2019, the exchange rate was Can
$1.8/US$
You are required to compute;
a) Gain or loss according to current rate and temporal method
b) Accounting exposure according to Monetary and non-monetary method.
11. The Canadian multinational organization is planning to set up subsidiary in India. The initial project cost
is Rupees 10 million. The working capital requirement would be Rs. 2 million. The project is generated
a cash flow of Rs.3 million every year for 10 years. Tax rate 10%. Discount factor is 10% and rupee
appreciated against cans$ 0.5% every year. The exchange rate is Rs. 55/Canadian dollar.

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