Subject Name: International Finance
Full Marks:30 Duration: 1 Hour
Part – A
Attempt 5 questions
Each question carries 2 Marks (2 X 5)
1. What is the Effective Exchange rate?
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1. On which account in a balance of payment does tourism showup?
2. What is Inter bank rate?
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2. A bank gives the customer the following quote: Rs 75.5066- 75.5076. What is the bid rate and ask rate respectively?
3. If the foreign currency is quoting at a premium compared to the rate 2 one month earlier, what is the implication for the home currency?
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3. Distinguish between fixed spread and floating spread.
4. In order to hedge against foreign exchange risks, what is the hedging strategy adopted by a) importers, b) exporters?
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4. Define’ Bill of Lading’.
5. What are the components of ‘Balance of Payment”?
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5. What is the difference between the spot rate and forward rate?
6. What is a foreign exchange ‘put’ option?
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6. Is euro bond issued in dollar?
7. Define a ‘straddle’.
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7. Define ‘Depository Receipts & Define Option Premium.
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8. Define the International Fisher Effect.
9. Define unilareral transfer payments.
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9. Define the term ‘MNC’.
10. Explain Lor Account?
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10. How would you define Vostro Account?
Part – B
Attempt 6 questions
Each question carries 5 Marks (5 X 6)
11. Different types of LOC are used in banking transactions – Elucidate.
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11. Discuss regarding the participants of a Letter of Credit.
2. What are the significant features of a foreign exchange forward contract?
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12. The interest rates in India and USA are 10% and 7% respectively.
The spot rate is Rs40/US$. What is the 90-day forward rate?
13. What are the risks involved in international trade?
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13. The rate of interest on investment in the money market in USA is 9% pa. Spot rate is Rs 45.10/US$ and the 90 day forward rate is Rs 45.15. Which hedge should be preferred by an importer for outstanding payables of $1000.
14 What are the risks to which foreign exchange transactions are exposed?
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14. Spot rate is Rs 44.50/$. Three month forward rate is Rs 44.30/$. Speculator’s own estimate is that the future spot rate after three
months should be Rs 44.10/$. Will the speculator go for a forward contact if he has $ 10000 with him?
15. Explain the cocept of Collaboration’ with example.
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15. Distinguish between American Depository Receipts (ADR) and Global Depository Receipts (GDR).
16. Distinguish between FCCB and Foreign Bond.
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16. Suppose the GBP appreciates against the Indian rupee by 30%. What 5 is the depreciation of the Indian rupee?
Part – C
Attempt 5 questions
Each question carries 10 Marks (10 X 5)
17. What is ‘Balance of Payment’? Why balance of payment is vital for 10
a country?
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Calculate the annualized forward premium or discount from the data 10 given below. The Rs/$spot rate on June 1, 2007 is Rs 44.3500 (bid and ask rate).
Spot (July) = 0.1200 — 0.1100
Spot (Sept) = 0.1300 — 0.1200
18. “Operations in the foreign exchange market are exposed to a number of 10
risks.” – Justify this statement.
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18. Prepare a statement with necessary figures to show a favourable
Balance of Payment (BOP) from the Indian context.
19. An Indian software company had approached State Bank of India (SBI) for forward sale of £100,000 delivery on May 31, 2001. The bank had quoted a rate of Rs.65.60/£ for the purchase of pound sterling from the customer. But on May 31st, the customer informed the bank that it was not able to deliver the pound sterling as anticipated receivable from London has not materialized and requested the bank to extend the contract for delivery July 31st. The following are the market quotes available on May 31, 2001:
Spot Rs/£ 66.60/65
1m forward 20/25
2m forward 41/46
3m forward 62/68
You are required to find out the extension charges payable by the software company
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19. Followings are the spot exchange rates quoted at three different forex markets:
USD/INR 59.25/ 59.35 in Mumbai
GBP/INR 102.50/103.00 in London
The arbitrageur has USD1,00,00,000. Assuming that bank wishes to retain an exchange margin of 0.125%, explain whether there is any arbitrage gain possible from the quoted spot exchange rates
20. From the data given below, calculate forward premium or discount 10 as it is applicable
INR per British Pound Spot Rate INR 78.0001/78.2254
1 month forward rate INR 78.4256/ INR 78.5200
3 month forward rate INR 77.8952/ INR 77.9999
6 month forward rate INR 78.8925/INR 78.9925
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20. A customer with whom the Bank had entered into 3 months forward 10 purchase contract of French Francs 10,000 @ Rs.27.25. Customer comes to bank after 2 months and requests for cancellation of the contract. On this date, the prevailing rates are: Spot 1 French Franc: Rs.27.30 27.35 One month forward 1 French Franc: Rs.27.45- 27.52 What is the loss or gain to customer on cancellation?
21. A Fleur Co, has shipped goods to an American importer under a letter of credit arrangement, which calls for payment at the end of 90 days. The invoice is for $1,24,000. Presently the exchange rate is 5.70 Frech francs to the $. If the French franc were to strengthen by 5% by the end of 90 days what would be the transactions gain or loss in French francs? If it were to weaken by 5%, what would happen?
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21 A Laptop Bag is priced at $ 105.00 at New York. The same bag is priced at Rs.4,250 in Mumbai. (a) Determine Exchange Rate in Mumbai. (b) If, over the next one year, price of the bag increases by 7% in Mumbai and by 4% in New York, determine the price of the bag at Mumbai and-New York? (c) Determine the exchange rate after one year (d) Determine the appreciation or depreciation in $ and Rs. in one year from now
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