I. SECTION I is compulsory.
II. Answer any three from SECTION II. Each question carries 10 marks.
III. Use of simple calculator is allowed.
Q.1) explain briefly (15)
- Vostro account
- Petro dollar
- Global depository receipt
- Holgate’s principle
Q.2) a) from the given information identify the arbitrage opportunity and calculate the profit for 1 million (5)
1GBP = USD 1.5000(spot)
1GBP = USD 1.4985 (3 months forward) 3 months interest rate on GBP
6% p.a. interest rate on USD 5% p.a.
b) Read the following and answer the following questions
The value of currency, like the price of any other goods and services, depend its demand and supply and demand for a currency, US dollar, typically comes from Indian importers, people or investors that invests in the US (FDI or FII outflows) and travelers to US. All these agents required dollars transacting in the US.
Analogously exports to the US, travelers to India, FSI and FII inflows supply US dollars in return for the rupees to transact India. If the demand the rupees decreases compared to, say, the US dollar, the value of rupees goes down, and vice versa. Currently the RBI controls the foreign money flowing in and out of the country through different routes. At the same time selectively engages in buying and selling of foreign countries to mediate demand and supply in the forex market.
In effect, the RBI regulates the forex market intermittently.
But its ammunition to defend the value of rupees at any particular level is not sustainable for several reasons. First India’s forex reserve, which stands at $260 billion approximately, cannot defend the following rupee eternally. Even worse, much of the reserves are liabilities then assets, implying that ownerships In reserves is that much lower to help moderate currency demand and supply.
To explain let us assume that one bad day, all foreign investors (FDI and FII holders) in our country decide to take back in their money (which is extremely unlikely). In that dire situation, the RBI would have to borrow to a tune of $215 million to pay them all back.
Also, the increasing oil imports and falling exports shares in the recent months have contributed significantly towards draining (the already concerning levels of) our forex reserves. The arguments above indicate that the RBI does not have sufficient cushion to adhere to a fixed rate regime.
I. Distinguish between FDI and FII investments. (4)
II. Why that author does feels that the falling rupee cannot be defended eternally? (2)
III. What the causes are for drain I foreign exchange reserves? (2)
IV. What is fixed exchange rate? (2)
Q.3) a) study the following quote
1 USD = NZDS 1.5510/1.5560
I. Find the midrate spread and spread percentage (3)
II. Find the inverse quote (2)
b) The following quote is from New York
1 GBP = 1 USD 1.5975/1.6010
1 EUR = 1 USD 1.2375/90
Find the cross rate GBP/EUR (3)
The following quote is from Frankfurt
1 GBP = FUR 1.2950/65
Find whether there is arbitrage opportunity. If arbitrage is possible find the arbitrage profit for 1 million EURO. (2)
Q.4) a) the following quotes are from Mumbai spot 1 USD = Rs. 49.5600/5700 (5)
1 month forward 600/700
2 month forward 1500/1600
I. Write the quotes in outright form
II. What is the premium or discount percentage on bid and ask rates for one months ?
III. What is forward quote for 50 days?
b) From the following data decide the best option for borrowing 10 million rupees for a period of 6 months:- (5)
Currency spot in INR 6month forward in INR Interest rate
GBP 95.25-95.30 95.36-95.46 5.25-5.50
RJR 64.00-64.10 64.28-64.32 5.00-5.25
Q.5) a) what is off shore banking? (5)
b) Discuss the factor that led to the growth of EURO currency markets. (5)
Q.6) a) what are the salient features of currency derivatives. (5)
b) Write a short note on banks for international settlements. (5)