Treasury Management (Prof. Ramesh Laxman)
End Term Question paper, Batch – Nov, 2010 (Finance)
Instruction: Open Book, Open Laptop no internet
1. Briefly describe the treasury organisation in a bank treasury department [5 Marks]
2. RPL is setting up a 30,000 MW power plant in India. It approaches the US Exim Bank to fund it project to the extent of USD 5 Billion. It understands that the loan will tie it up to the procurement of plant and machinery from the US. But still it considers it to be worthwhile. Why do you think that this arrangement is good for the company. If not explain why not. [5 Marks]
3. Given the current situation (Dec 2010) what would be your advice to a company that seeks to raise USD 100 m from the market. In which currency and in which markets would you recommend that they raise the funds and what do you think would be the interest rate at which they can raise the funds and why? You answer must cover all major international markets for funds [10 Marks]
4. What in your opinion should be the approach of a company in deciding a policy to decide the basis for its borrowings between fixed rate and floating rate borrowings. In case you have excess borrowings under one method and you would like to convert it into another method then how would you achieve that objective [5 Marks]
5. In what way does the treasury management in a multinational company differ from that of a non MNC company both with respect to working capital and long term funds management. What should be an approach in determining the decisions to go ahead with a project or reject it. Also discuss which discount rates would you use to determine the present value of future cash flows. [10 Marks]
6. The following details appear in the annual report of the P and G for the year ended 30th June, 2010.
SHORT-TERM AND LONG-TERM DEBT
| June 30 | 2010 | 2009 |
| DEBT DUE WITHIN ONE YEAR | | |
| Current portion of long-term debt | $ 564 | $ 6,941 |
| Commercial paper | 7,838 | 5,027 |
| Other | 70 | 4,352 |
| TOTAL | 8,472 | 16,320 |
| Short-term weighted average interest rates (1) | 0.4% | 2.0% |
7.
(1) Weighted average short-term interest rates include the effects of interest rate swaps discussed in Note 5.
| June 30 | 2010 | 2009 |
| LONG-TERM DEBT | | |
| 1.35% USD note due August 2011 | $ 1,000 | $ — |
| 4.88% EUR note due October 2011 | 1,221 | 1,411 |
| 1.38% USD note due August 2012 | 1,250 | — |
| 3.38% EUR note due December 2012 | 1,710 | 1,975 |
| 4.50% EUR note due May 2014 | 1,832 | 2,116 |
| 4.95% USD note due August 2014 | 900 | 900 |
| 3.50% USD note due February 2015 | 750 | 750 |
| 0.95% JPY note due May 2015 | 1,129 | — |
| 3.15% USD note due September 2015 | 500 | — |
| 4.85% USD note due December 2015 | 700 | 700 |
| 5.13% EUR note due October 2017 | 1,344 | 1,552 |
| 4.70% USD note due February 2019 | 1,250 | 1,250 |
| 4.13% EUR note due December 2020 | 733 | 846 |
| 9.36% ESOP debentures due 2010 – 2021 (1) | 854 | 896 |
| 4.88% EUR note due May 2027 | 1,221 | 1,411 |
| 6.25% GBP note due January 2030 | 753 | 832 |
| 5.50% USD note due February 2034 | 500 | 500 |
| 5.80% USD note due August 2034 | 600 | 600 |
| 5.55% USD note due March 2037 | 1,400 | 1,400 |
| Capital lease obligations | 401 | 392 |
| All other long-term debt | 1,876 | 10,062 |
| Current portion of long-term debt | (564) | (6,941) |
| TOTAL | 21,360 | 20,652 |
Given this situation answer the following questions
a) What do you think is the strategy adopted by the company for funding short term working capital requirements and do you agree with the company’s strategy or would you recommend an alternate strategy. [5 Marks]
b) What is your view of the future interest rate and given your view on the future course of interest rate in the US, what would you recommend the company should do in planning for liquidity and interest rate risk management. [10 Marks]
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