Sample Paper - End Term Exam

International Finance – Prof. Parmeshwaram

End Term Exam - GMBA Nov 10

Time: 90 Minutes

Marks: 40

Part A (5 X 4 = 20)

1) When a country can go for full convertibility? Your answer should be based on some of the economic crisis in the global market.

2) How a “line of credit” facility is operating? How it differs from a “Buyer’s Credit”?

3) Write a short note on evaluation of country risk.

4) What are the factors a corporate will consider before opting for raising equity through ADR option?

5) One of the companies has exposures in more than 5 major currencies. Suggest the appropriate currency risk management strategy they should adopt?

Part B (20 Marks)

1) With the following market information, arrive at the forward differentials (Both Buy & Sell – Bid / Ask)

Currency	Spot
GBP / USD	1.6000 / 50
EUR / USD	1.3200 / 50

Present LIBOR and LIBID for 6 months: (annualized)

Currency	Interest Rates
	LIBID	LIBOR
USD	2.50%	3.00%
EUR	2.00%	2.25%
GBP	3.25%	3.50%

2) One of the leading Singapore oil companies wants to raise a loan in USD 100 million for 60 days for payment of their import bill. They have the option of borrowing in USD or JPY. From the following data, find out the best option. The company would like to cover their foreign currency exposure (360 days in a calendar year)

	Spot	Forward Differentials for 60 days	Interest Rates Annualized
USD / SGD	1.2880 / 90	20 / 25	USD 2.5%
USD / JPY	80.50 / 60	30 / 20	JPY 1.25%

3) One of the US firm has 90 days receivable of CHF 50 million (inward remittance on CHF). They would like to convert this CHF into USD. This company has access to domestic as well as offshore markets. Inter-bank rates are: (360 days in a calendar year)

USD / CHF = 0.9870 / 80

90 days FWD differentials = 30 / 20

Money Market	Bid / Offer
Interest Rate for USD	2.00 / 2.25
Interest Rate for CHF	1.25 / 1.50

By booking the forward contract, how much USD the firm will receive. If the firm wants to opt for money market route, how much USD they will receive. Please work out and find out the better option.

4) One of the power plants in Philippines, Bataan 2020 Inc, Baesa Quezon city, imports steam turbine generator from Thermax India for value of USD 2,000,000 payment maturing December 2011. Following is the exchange rate and interest rate prevailing in both countries:

Currency	Spot	6 Month FWD
USD / INR	44.60 / 61	120 / 121
USD / PHP	43.10 / 12	160 / 162
Interest Rate prevailing – 6 month annualized
USD	2%
INR	8%
PHP	10%