International Financial management.

7 marks Questions

1. Explain how the financial management of domestic firms differ from that of
multinational firms.
2. Discuss the various types of international banking offices.
3. Explain the importance of foreign exchange market.
4. Company a inches to borrow USD at a fixed rate of interest. Company B wishes to
borrow INR at a fixed rate of interest. The companies have been quoted to following
interest rates:

INR USD
Company A 10% 5%
Company B 12% 6%
Design a swap that will net a bank acting as an intermediary 20 bps per annum. Make the
swap appear equally attractive to the two companies.
5. Explain the factors to be considered in multinational capital budgeting.
6. For imports from UK, Philadelphia Ltd. of USA own £ 650,000 to London Lad, payable
on May 2014. The following future contracts (contract size E 62.500) are available on the
Philadelphia exchange. May expiry - current futures rate $1.49/E. Illustrate how
Philadelphia Ltd. can use futures contracts to reduce the transaction risk if. on 20 May the
spot rate is $1.5030/E. The spot rate in February (current) is $1 4850) £
7. Using interactional Fischer effect, ascertain futures spot rate after one your, for
Australian Dollars in UK, given the following information:
Current spot rate is £1 = Australian Dollar AUD 2.
Interest rate in UK is 9%, Australia is 7%.
8. What are the distinguishing features of international finance? Explain
9. Explain in detail European Monetary system.
10. who are the major participants of forex market?
11. Record the following transaction and prepare BOP.
a) A US from export $10,000 goods
b) A US citizen visits London and spends $ 400 on toursm.
 c) A Government gives $ 200 to Uganda government for aid
d) A US citizen purchased foreign stock for $ 600 of US T-BILLS and pay for it by
increasing foreign bank balance.
e) A Foreign investor purchases $ 600 of US T-BILLS and pay for it by drawing
down his bank balance in equal amount.
12. Discuss the advantages and disadvantages of maintaining multiple manufacturing sites in
various countries as a hedge against exchange rate exposures.
13. what are the main distinctions between forward and future contracts?
14. Show the arbitrage opportunity and show the profit for $ 50, 00,000.
Credit Lyonnais: S (e/S) = 0.7627
Barclays: S ($/£) = 1.9072
Credit Agricole: A(E/E) =1.4490
15. Write short note on "Correspondent Bank".
16. Explain the rationale behind purchasing power parity.
17. Briefly discuss the various techniques to eliminate economic exposure.
18. Discuss Country Risk Analysis.
19. Discuss objective and functions of world bank.
20. What is foreign exchange rate? What are the factors that affect foreign exchange rate?
21. Explain how each of the following condition would be expected to affect the value of
Mexican Peso.
Situation
I. Mexico suddenly experiences high rate of inflation.
II. Mexico interest rate rise while inflation is expected to remain low.
III. Mexico central bank intervenes in the foreign exchange market by purchasing
dollars with peso
IV. Mexico imposes quotas on product imported from US.
22. Distinguish between a currency forward contract and a currency future contract
23. Explain different methods of exchange rate forecasting.
24. From the following information, determine the outright rates, spread and the percentage
premium or discount (ask rate).

spot 1 month 6 month

INR/MYR 16.2725/46 20/30 40/35
INR/NZD 47.5212/18 213/203 175/192
25. Describe how inflation and interest rates affect equilibrium exchange rates.
26. What is Translation exposure? Explain the translation methods.
27. Explain the issues involved in international capital budgeting.
28. Explain the various international business methods.
29. Explain the organizational structure and functions of IMF.
30. Convert the following rates into outright rates and indicate their spread:

Spot 1 month 3 month 6 month

$/RS 43.6300/25 20/25 25/35 30/40

31. Company A wishes to borrow dollar and B yens. The interest rate applicable to A and B
are as follows:

Yen Dollar
A 5% 9.6%
B 6.5% 10%
The exchange rate is currently 120V/S. Explain how you can structure a currency SWAP
that will net a bank 40 basis points.

32. Critically evaluate purchasing power parity theory.