Archive | International Finance

Financial risk management Financial risk management is the practice of creating economic value in a firm by using financial instruments to manage exposure to risk, particularly credit risk and market risk. Other types include Foreign exchange, Shape, Volatility, Sector, Liquidity, Inflation risks, etc. Similar to general risk management, financial risk management requires identifying its sources, [...]

Geographical Arbitrage Sums   (1)   Bank A                  GBP USD                   1.6920             1.6940 Bank B                  GBP USD                   1.6880             1.6900 Calculate Arbitrage, if any. (Ans.: 1,183)   (2)   Bank X                  EUR CHF                   1.4790             1.4820 Bank Y                  CHF EUR                   0.6700             0.6720 Calculate Arbitrage, if any. (Ans.: 4,113)   (3)   City Bank              CAD AUD                 0.9530             0.9550 Barclays                CHF EUR                   1.0500             [...]

Triangular Arbitrage Sums   (1)   Trader A                EUR USD       1.20 Trader B                GBP USD       1.60 Trader C                EUR GBP       0.7575 Calculate Arbitrage, if any. (Ans.: 10,000) (2)   Trader X                EUR USD       1.21     1.22 Trader Y                GBP USD       1.61     1.62 Trader Z                EUR GBP       0.76     0.77 Calculate Arbitrage, if any. (Ans.: 2,951)   (3)   Barclays                USD [...]

Covered Interest Arbitrage Sums   (1)   USD HKD                        7.0000             Spot USD HKD                        7.1000             6 months Interest Rates        Hong Kong     4% US of A          3% Calculate Arbitrage, if any. (Ans.: Borrow        HKD         Gain           HKD            9,500)   (2)   USD INR              52                    Spot USD INR              53                    6 months Interest Rates        India                9% US of A                [...]

International Fischer Effect Sums   (1)   USD EUR             0.7000             Spot Interest Rates        Europe             6% US of A          5% Calculate 6 month Forward Rate. (Ans.: USD           EUR          0.7034)   (2)   CHF CAD                        0.8500             Spot Interest rates         Canada                        3% Swiss                     4% (i)     Calculate 73 days forward Rate (ii)   Calculate Forward premium/discount annualized. (iii) Write your observation. [...]

Investment Decision Sums   (1)   Calculate interest receivable in each of the currency for million Currency Spot 6 month Forward Interest Rates INR USD INR AUD INR CAD INR 51.00 54.20 48.00 51.20 54.40 48.30 51.60 54.60 48.60 51.80 54.80 48.80 6.00% 4.70% 5.20% 4.10% 6.40% 5.00% 5.50% 4.30%  (Ans.: INR 30,000; USD 31,496; AUD [...]

Borrowing Decision Sums   (1)   Calculate interest payable in each of the currency for million. Currency Spot 6 month Forward Interest Rates INR USD INR AUD INR CAD INR 51.00 54.20 48.00 51.20 54.40 48.30 51.60 54.60 48.60 51.80 54.80 48.80 8.00% 4.70% 5.20% 4.10% 8.20% 5.00% 5.50% 4.30% (Ans.: INR                    USD        AUD         CAD          [...]

Forex Spot and Forward Illustration 31   Spot USD INR 50.00 Spot EUR INR 60.00 In 1 year Dollar will appreciate by 4% and Euro will depreciate by 5%. Calculate 1 year later likely rates of USD INR, EUR INR, EUR USD and USD EUR. (Ans.: 52, 57, 1.0962 and 0.9123)  

Forex Spot and Forward Illustration 30   Using following data, calculate exchange rate for CAD, CHF, GBP and EUR in terms of Indian Rupee.   Bid Ask USD INR 45 45.5   USD CAD 1.1100 1.1250 USD CHF 1.5017 1.5364 GBP USD 1.7500 1.7600 EUR USD 1.2500 1.2600 (Ans.: CAD INR 40/41; CHF INR 29.29/30.30; [...]

Forex Spot and Forward Illustration 29   Using following data, calculate exchange rate for CAD, CHF, GBP and EUR in terms of Indian Rupee. USD INR 48   USD CAD 1.20 USD CHF 1.50 GBP USD 1.75 EUR USD 1.25 (Ans.: 40, 32, 84, 60)