Reference no: EM131483726

Objective Type & Short Questions

Part One: Multiple choices:
1. Foreign exchange market in India is relatively very .
a. Big
b. Small
c. Medium
d. None of the above

2. Balance of payment is a systematic record of all during a given period of time.
a. Political transactions
b. Social transactions
c. Economic transactions
d. None of the above

3. Merchandise trade balance, services balance & balance on unilateral transfer are the part of account.
a. Current account
b. Capital account
c. Official account
d. None of the above

4. Interest rate swaps can be explained as an agreement between parties.
a. One
b. Two
c. Three
d. None of the above

5. Capital account convertibility in India evolved in August a. 1996
b. 1995
c. 1994
d. None of the above

6. Interest rate parity is an economic concept, expressed as a basic algebraic identity that relates.
a. Capital rate & interest rate
b. Interest rate & exchange rate

c. Currency rate & exchange rate
d. None of the above

7. The two kind of swap in the forward market are
a. Forward & reverse swap
b. Reverse swap & option swap
c. Forward & option less swap
d. Forward swap & option swap

8. FEMA stands for
a. Forward exchange market
b. Future exchange market
c. Foreign exchange management act
d. None of the above

9. Exchange rate quotation methods are
a. Direct and direct
b. Indirect and indirect
c. Direct and indirect
d. None of the above

10. International Fisher effect or generalized version of the Fisher effect is a combination of
a. PPP theory and Fisher?s open proposition
b. Fisher?s open and closed proposition
c. PPP theory and Fisher?s closed proposition
d. None of the above

Part Two:

1. Write a short note on „Interest Rate Parity System? for exchange rates.

2. What are Direct & Indirect Quotes of exchange rates?

3. What is „International Mutual Fund??

4. Briefly describe „swaps in foreign exchanges markets?.

Section B: Case lets

- This section consists of Case lets.
- Answer all the questions.
- Each Case let carries 20 marks.
- Detailed information should form the part of your answer (Word limit 150 to 200 words).

Case let 1

Managing Exchange Rate Risk

Mahindra International (India) imported spares of an engine from a US manufacturer for $ 5,000 per annum at a price of $ 2.5 per piece. The average exchange rate during 2001-02 was Rs. 47.70/$. The Indian company imported the spares also from a British manufacturer. In fact, it had diversified its import in view of reducing the risk associated with the supply. The import from the USA was competitive in view of the fact the same spares imported from the UK was slightly costlier. The American spares cost Rs. 119.25 per piece, while the British spares cost Rs. 120.00 per piece. In 2002-03, US dollar appreciated to Rs. 48.40 with the result that the cost of American spares turned higher than the British spares. In the sequel of the appreciation of US dollar, the Indian importer cut its demand from 2,000 pieces to 500 pieces. The loss to the US exporter was colossal. But at the same time, the Indian Importer suffered a lot. It had to pay a higher price for the US spares in terms of rupee. And also, it had to divert its import from the USA to the UK insofar as the pound sterling did not appreciate during this period. All this happened in the wake of the exchange rate changes.

Questions:

1. Mention the loss borne by the US exporter in the sequel of appreciation of dollar.

2. What strategy the Indian importer needs to follow to hedge the exchange rate risk?

Case let 2

ABN Amro Bank and Correspondent Banking in India
ABN AMRO bank has emerged as a major correspondent bank owing to a large network. In India, it operates in six major cities, viz. Baroda, Chennai, Kolkata, Mumbai, New Delhi and Pune. Being a correspondence bank, its product offerings are found primarily in the area of trade and clearing. It is doing well in these owing to strong tie-up with local Indian banks reaching 350 centres across the country. As a result, payments are effected speedily and effectively.

Cash Management

The customized products in the area of cash management include cheques payable at par at all its branches across the country, apart from traditional collection services, such as collection of outstation/upcountry cheques drawn on other banks. ABN AMRO is a member of all major clearing centers in the major financial centers. It has an electronic delivery system and structures multilateral netting of cash.
Trade Services
Under trade services, the Bank offers a comprehensive range of products, such as:

1. LC reimbursement
2. Indian rupee trade payments
3. Handling documentary bills for collection
4. Bills negotiation
5. Letter of credit advising
6. Letter of credit confirmation
7. Guarantees

Treasury Services
Treasury services at ABN AMRO Bank (India) are available round-the-clock. Rupee funding at its treasury desk is provided at competitive rates along with advice on market trends and rates. It provides also advisory services on the request of financial institutions and corporate in the area of regulatory, economic and financial matters including depository services.

Questions:

1. Describe the network of ABN AMRO Bank in India.

2. What role does it play for global cash management?

Section C: Applied Theory

1. Discuss the factors that affect foreign exchange market. Explain the different types of foreign exchange quotations.

2. What do you mean by balance of payment? What are the key components of balance of payment

Security Analysis and Portfolio Management

Multiple choices:
1. Beta is useful for comparing the relative of different stocks.
a. Business risk
b. Systematic risk
c. Liquidity risk
d. Country risk

2. The price prevailing in market is called
a. Market security
b. Market value
c. Market price
d. None of the above

3. Line charts, Bar charts, Candles tic charts are the parts of
a. Fundamental analysis
b. Technical analysis
c. Company analysis
d. None of the above

4. A market portfolio is a portfolio consisting of a weighted in the market.
a. Sum of every equity
b. Sum of every liabilities
c. Sum of every assets
d. None of the above

5. The date on the option contract is called the
a. Expiration date
b. Date of maturity
c. Both a) & b)
d. None of the above

6. A forward contract is an agreement made today between a to exchange the commodity.
a. Buyer & buyer
b. Buyer & seller

c. Seller & seller
d. None of the above

7. Portfolio means a collection or combination of financial assets such as?
a. Shares
b. Debentures
c. Government securities
d. All of the above

8. CAPM is the abbreviation of
a. Capital Asset Pricing Measure
b. Capital Average Pricing Model
c. Capital Asset Pricing Model
d. None of the above

9. In India the secondary market for shares is regulated by
a. RBI
b. SEBI
c. Company law board
d. There is no regulatory authority

10. The risk of the whole market as measured by „Beta? is
a. 1
b. 0
c. -1
d. None of the above

Part Two:

1. What does „β? (Beta) mean in risk management?

2. Write a note on „options? & „future? derivatives.

3. Define Capital market theory.

4. Write a short note on CAPM.

Case let 1

TOUAX is a French company and is currently Europe?s no. 1 in shipping containers and river barges, and no. 2 in modular building and freight railcars. The group provides operating leases to customers around the world, both on its own account and for third-party investors. On June 24, 2009,

TOUAX announced that its capital increased by waiving preferential subscription rights but with priority for existing shareholders, launched on 18 June 2009 for a total of E17, 851,519.76 (gross) through the issue of 936,596 new shares which were subscribed in the entirely. Following partial application of the extension clause, 952,747 shares were placed or 101.72% of the issue; total proceeds were E18, 159,357.82.

This rights issue has enabled the Group to strengthen its financial structure, to position itself with advantage for possible acquisitions of tangible stock, and to grasp opportunities thrown up by the crisis (purchase of shipping containers, modular buildings, river barges and railcars, for hiring out on mainly long-term leases). 370,062 new shares allotted under absolute entitlement were subscribed or 39.51% of the total number of new shares issue. Another 555,685 shares were applied for subject to cutting back in the event of over subscription, and orders for these were all filled. Another 27,000 shares had been applied for by the general public, and following partial application of the extension clause it proved possible to fill orders for all of these.

All the result of the right issue, TOUAX is well placed to respond to the boom in corporate outsourcing of non-core assets, and every day provides over 5,000 customers with quick and flexible leasing solutions. TOUAX is now listed on Euronext in Paris - NYSE Euronext Compartment C (ISIN Code FR0000033003), and features in the SBF 250 Index.

Questions:

1. After analyzing the case, do you think all the companies that can afford, should opt for right issue to improve their financial status?

2. What do you analyze as the two main advantages of the right issue?

Case let 2

In mid-February 1994, the British paper, the Sunday times ran on article that alleged that a 1 billion sterling ($ 750 M) sale of equipment by British companies to Malaysia was secured only after bribes had been paid to Malaysian government officials and after the British overseas development administration (ODA) had agreed to approve a 234 million sterling grant to the Malaysian government for a hydroelectric dam of (according to the Sunday times) dubious economic value. The clear implication was that UK officials, in their enthusiasm to see British companies win a large defence contract, had yield to pressures from "corrupt" Malaysian officials for bribes - both personal and in the form of the 234 million sterling development grants.

What happened next took everyone by surprise. The Malaysian government promptly announced a an on the impact of all British goods and services into Malaysia and demanded an apology from British Government. Officially the ban applied only to government orders for British goods and services; the private sector was free to busy as it chose. However, British companies with experience in the region were nervous that the private sector would follow the government?s lead in shunning British products. At stake was as much as 4 billion sterling in British exports and construction activities in Malaysia and a presence in one of the world?s fastest growing developing economies (Malaysia?s economic growth has averaged 8% per annum since 1989). In announcing the ban, Malaysia?s Prime Minister, Dr Mahathir Mohammad, noted that the British media portrays Malaysians as corrupt because " They are not British and not white"...And "we believe the foreign media must learn the fact that developing countries, including a country led by brown Moslem, have the ability to manage their own affairs successfully".

The British government responded by stating, it could not tell the British press what and what not to publish, to which Dr Mahathir replied there would be "no contracts for British press freedom to tell lies". At the same time, the British government came under attack from members of parliament in Britain, who suspected the government acted unethically and approved the ODA hydroelectric grant to help British companies win orders in Malaysia.

Questions:

1. If you are the CEO of a British company that now faces the loss of a lucrative contract in Malaysia because of the dispute. What action should you take?

2. How do you think British government should respond to the Malaysian action?

Section C: Applied Theory

1. What do you mean by risk management? Elaborate the various kinds of systematic and non- systematic risks.

2. What do you mean by Portfolio management? What are the methods of calculating portfolio performance evaluation?