- All questions are compulsory in section I and
- Attempt any 3 from section II
Section I
Q.1) explain in brief:- (15)
a) Special drawing rights
b) Tax heaven vehicle currency
c) Call/ put options
d) Petro dollar
Q.2) the global meltdown of 2008 saw a record withdrawal of USD 13 billion of portfolio investments from the Indian capital markets. The record crude oil price is the first half of the year also contributed to the outflow of foreign currency reserves from the country, which dropped almost USD 60 billion from their peak levels of the previous year. Capital inflows because of mergers and acquisition, joint venture and foreign direct investments’ were reduced to a trickle.
The Indian economy, which was struggling with the management of liquidity and inflation. Was suddenly faced with adverse liquidity and is needed to maintain the falling economic growth rate. Although the monetary authorities took several stages to boost consumption by increasing more supply and reducing interest rates, the sector, which suffered the most, was the export sector. The absence of export orders from the developed countries and fall in domestic demands was double blow for this units.
The difficult situation in international market and the drastic fall in equity prices created major problem for the entities who had borrowed internationally through hybrid instruments such as foreign currency convertible bonds. Due to low equity prices the bondholders avoided conversion into equity on maturity. This meant that the borrowing company has to arrange debt for financing the redemptions in a very difficult market.
Q.1) what are the different forms of foreign currency inflows? (3)
Q.2) define foreign portfolio investment. Distinguish between Foreign direct investments and foreign portfolio investments. (4)
Q.3) what are the characteristics features of foreign currency convertible bonds? (4)
Q.4) what is the relation between foreign currency reserves and money supply? (4)
Section II
Q.3) a) the following Quote is given:-
USD 1= CAD 1.1630/50
Identify the country in which this is a direct quote (1)
Find the mid rate, spread and spread percentage (3)
Calculate the inverse quote (1)
Q.3) b) the following foreign exchange quote are available in New York (5)
USD 1= GBP 0.6542/47
USD 1= CHF 1.5530/35
Calculate the cross currency quote for 1 Gbp in terms of CHF. The following quote is available in Zurich,GBP 1= CHF 2.3722/2.3745
Compare this with the calculated cross currency quote and state whether artbitrage opportunity exists. Calculate the same (if any) for 1 million GBP.
Q.4) a) the following quotes are available in Mumbai
USD 1= INR 47.7000/7200 (spot)
2 months forward 240/300.
Write the forward quote in the outright form. (1)
Calculate the AFM premium/discounts for bid and offer rates . (2)
What is the likely forward quote for 1 month and 10 days. (2)
Q.4) b) from the following quote decide the best alternative for investing INR 4 million for 6 months on the risk free basis. (5)
Spot(in INR) 6months forward(in INR) Interest % (p.a.)
INR —————- ——————————- 5.75/6.25
USD 44.72/44.87 45.20/45.30 4.25/4.75
GBP 92.90/93.00 93.23/93.33 5.25/5.75
Q.5) a) enumerate the characteristics of Euro-currency markets. (5)
(b) Discuss the issue of convertibility on INR. (5)
Q.6) a) distinguish between Forward contracts and Future Contracts . (5)
B) distinguish between Autonomous and Accommodating transactions. (5)
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