International Finance

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Q 1. Answer any 2 (15 marks)

  1. How can a country correct its balance of payment position
  2. Distinguish between autonomous and accommodating transaction
  3. What is vehicle currency and what are the factors on which a country decides to adopt a vehicle currency.

 

Q 2. Read the case and answer the questions below

The Asian financial crisis was a period of financial crisis that gripped much of Asia beginning in July 1997, and raised fears of a worldwide economic meltdown due to financial contagion.

The crisis started in Thailand with the financial collapse of the Thai baht after the Thai government was forced to float the baht (due to lack of foreign currency to support its fixed exchange rate), cutting  its peg to the U.S. dollar, after exhaustive efforts to support it in the face of a severe financial overextension that was in part real estate driven. At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency.  As the crisis spread, most of Southeast Asia and Japan saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt.

  • Explain the concept of Hot money with context to the above case (3 marks)
  • Why is FDI important to any country(3 marks)
  • What is the difference between FDI and FPI (2 marks)
  • Explain convertibility of a currency with reference to the above case(2 marks)

 

Identify if there is any arbitrage opportunity in the sum below

USD/INR Spot    50.1245

3 month USD/INR Forward          50.1267

USD Int rate:- 3%pa        INR Int rate:- 4% pa

 

Q 3 Solve any 2 (15 marks)

  1. What are the factors leading to growth of euro currency market
  2. What are the features of bretton woods system
  3. Distinguish between fixed and flexible exchange rate system

 

Q 4. Solve any 2 (15 marks)

  1. What are the different methods of Hedging.
  2. Find the best alternative to invest 1 Million INR for a period of 3 months
Currency         Spot         Forward Int rate
INR 5-6%
USD/INR 54.1123/33 54.1221/45 3-4%
GBP/INR 80.2378/02 80.5543/68 2.5-2.8%
EURO/INR 77.8766/99 77.9214/67 3-3.5%
  1. For the following quote, calculate Spread, Spread percentage, mid rate and inverse rate AUD SGD 1.5567/04. Also identify which country would this be a direct rate.

Q 5. Solve any 3 (15 marks)

  1. The following quotes are from Mumbai

Spot 1 USD = Rs. 49.5600/5700

1 month forward 600/700

2 month forward 1500/1600

Write the quotes in outright form. Compute the 50 day quote.  Also compute the 55 day 100 INR USD quote

 

  1. 1 GBP = USD 1.5975/1.6010

1 EUR = USD 1.2375/90

Find the rate of GBP/EUR

The following quote is from Frankfurt

1 GBP = EUR 1.2950/65

Find whether there is arbitrage opportunity.

 

  1. Spot USD AED 3.7584

USD Int rate:- 3% pa

AED Int rate:- 4%pa.

Find the 3 month forward rate and hence find AFM as well. Comment on the result of AFM

 

For any doubts, contact :

Prof Vipin Saboo  9820779873                                                                                                  

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Education Qualification: BMS- N M College (University Rank Holder) PGDBM- Sydenham College M Com- College topper Mr Vipin Saboo has been associated with the following institutes as a visiting faculty Lords college, Malad Patkar College, Goregoan Saraf college, Malad Dalmia college, Malad St Andrews College, Bandra Wilson College, Grant Road Thakur college, Kandivili L N College, Kandivili N K College, Malad Dhanukar College, Vile Parle St Xaviers College, Marine Lines Shroff College, Kandivili KES College, Khar Mr.Vipin Saboo also has more than 5 years of industry expertise with corporate like CRISIL, Motilal Oswal Investment Banking and Yes Bank. Mr. Saboo has also published a text book on Logistics and Supply Chain Management for TYBMS Students.
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