Download BU (Bangalore University) MBA 4th Semester 2018 July International Financial Management Question Paper

Download BU (Bangalore University) MBA (Master of Business Administration) 4th Semester 2018 July International Financial Management Question Paper

Illlllll?lllll PG ? 607
IV Semester MBA. Degree Examination, July 2018
(0803 Soheme)
MANAGEMENT
412/452 : lntematlonal Flnanctal Management
Time :3 Hours Max. Marks :70
SECTION ? A
Answer any ?ve of the following questions; Each question carries
?vo marks. (5x5=25)
1. Write a short note on the evolution of International Monetary System.
2. What is Balance of Payments' 7 Explain its relationship with the diffelent
economic variabtes.
3. Explain Interest Rate Parity Theory and International Fisher Effect.
4. The following quotes are available :
Spot (DMIS) 1510515120
Three?month swap points 25/20
Six-month swap points 30125
Calculate the three-rnomh and six?month outright fonnrard rates.
5. A Bank sold Hong Kong Dollars 40,00,000 value spot to its customer at
Rs. 7.15 and covered itself in London market on the same day, when exchange
rates were :
uss .-_ HKS 7.9250 ? 7.9290
Local interbank market rates for US$ wave
Spot U831 '= Fts? 55?00 ? 55.20
You are raquired to calculate rate and ascertain the gain or loss in the transaction.
ignore brokerage. You have to show the?calcula?ons for exchange rate up to
tour decimal points.
P10.

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PG ? 607 -2. llllllllliiilllll?l??illi
6. If the present rate for 6 months borrowings in india is 9% per annum and
the corresponding rate in USA is 2% per annum and the US$ is selling at
Rs. 64.50/$, then '
i) Will US$ be at a premium or at a discount in the Indian Forward Market ?
ii) Find out the expected 6 month forward rate for US$ in India.
iii) Find out the rate of forward premium/discount.
7. Following information is available in respect of a put option on ?1
Strike price $ 1.50/?
Option premium $0.04 per ?
Spot rate on strike date $ 1.40/?
Find the pay off of the buyer and seller of the put option given that one option
contract cover 10000 units of ?.
SECTION ? B
Answer any three questions. Each question carries ten marks. (3x10=30)
8. What is Foreign Exchange Risk ? State and explain the various types of Foreign
Exchange Risk with examples. Briefly explain the ?internal techniques? for
Mitigating Transaction Risk.
9. Companies A and B have the folioiNing interest rates :
A B
US Dollars (floating rate) LIBOR + 0.5% LIBOR + 1%
Canadian (fixed rate) 5.0% 6.5%
A wants to borrow US Dollars at a floating rate of interest and B wants to borrow
Canadian dollars at a fixed rate of interest.
A financial institution is planning to arrange a swap and requires a 50 basis
point Spread. If the swap is equally attractive to A and B, what rates of interest
will A and B end up paying ?

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10. Explain ADR?s and GDR?s as tool?nstrument of financial investments in Foreign
Market.
11. Indus Ltd. is the wholly owned Indian subsidiary of US based company, Gofts
Ltd. non-consolidated Balance Sheets of both Gofts Ltd. and Indus Ltd., (only
foreign operations), in thousands, are as follows :
Assets Gofts Ltd. Indus Ltd. (Affiliate)
Cash $2,200 Rs. 8,000
Accounts receivable 2,400 4,600
Inventory 2,400 7,000
Net plant and equipment 4,600 9,000
Investment 2,000 ?
Total $13,600 Rs. 28,600
Plant and equipment and common stock were acquired when exchange rate
was Rs. 38.20/$.
Liabilities and Net Worth Gofts Ltd. (parent) Indus Ltd. (Affiliate)
Accounts payable $1,000 Rs. 12,000
Common stock 4,000 6,000
Retained earnings 8,600 10,600
Total _ $13,600 Rs. 28,600
The current exchange rate is Rs. 43.20/$. Gofts Ltd. translates by current rate
method. '
3) Calculate the accounting exposure for Gofts Ltd. by the current rate method
and monetary/non-monetary method.
b) Prepare a consolidated Balance Sheet for Gofts Ltd. and Indus Ltd.

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SECTION - C
This is a compulsory question carrying fifteen marks : (1,x15=15)
12. Case study:
ABC Ltd., a US firm, will need ? 5,00,000 in 180 days. In this connection, the
following information is available :
Spot Rate 1 ?2 = $ 2.00
180 days forward rate of 2 as of today is $ 1.96.
Interest rates are as follows :
U.S. U.K.
180 days deposit rate 5.0% 4.5%
180 days borrowing rate 5.5% 5.0%
A call option on ?2 expires in 180 days has an exercise price of $ 1.97 and a
premium of $ 0.04.
ABC Ltd., has forecasted the spot rates for 180 days as below :
Future Rate (3) 1.91 1.95 2.05
Probability 30% 50% 20%
Which of the following strategies would be most preferable to George Ltd. ?
a) A forward contract
b) A money market hedge
c) An option contract
d) No hedging option.