PROGRAM - MBA

SEMESTER - 4
SUBJECT CODE & NAME - MF0015 & INTERNATIONAL
FINANCIAL MANAGEMENT
1. Explain Globalization. What are the Advantages
of Globalization and Disadvantages of Globalization
?
Globalization
Globalization can be defined as the process of international integration that arises
due to increasing human connectivity as well as the interchange of products, ideas
and other aspects of culture. It includes the spread and connectedness of
communication, technologies and production across the world and involves the
interlacing of cultural and economic activity. The term 'globalization' was used by
the late professor Theodore Levitt of Harvard Business School in an article titled
'Globalization of Markets' which appeared in Harvard Business Review in 1983. The
world turning into a global market has its own advantages and disadvantages for
various countries.
During the last couple of years, there has been a rapid internationalization of the
world financial markets. The US financial investors have invested heavy funds into
overseas markets to reap the

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2.
In foreign exchange market many types of
transactions take place. Explain the meaning and
role of forward, future and options market.
Forward Market
In the forward market, contracts are made to buy and sell currencies for future
delivery, say, after a fortnight, one month, two months and so on. The rate of
exchange for the transaction is agreed upon on the very day the deal is finalized.
The rate of exchange for the transaction is agreed upon on the very day the deal is
finalized. The forward rates with varying maturity are quoted in the newspapers and
those rates form the basis of the contract. Both parties have to abide by the
contract at the exchange rate mentioned therein irrespective of whether the spot
rate on the maturity date resembles the forward rate or not. The value date in case
of a forward contract lies definitely beyond the value date applicable to a spot
contract.
Sometimes the value date is structured to enable one of the parties to the
transaction to have freedom to select a value date within the prescribed period. This
happens when the party does not know in

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3. Explain Swap, its features and types of Swap.

Swap is an agreement between two or more parties to exchange sets of cash flows
over a period in future. The parties that agree to swap are known as counter parties.

It is a combination of a purchase with a simultaneous sale for equal amount but

different dates. Swaps are used by corporate houses and
banks as an innovating financing instrument that decreases borrowing costs and
increases control over other financial instruments. It is an agreement to exchange
payments of two different kinds in the future. Financial swap is a funding technique
that permits a borrower to access one market and then
exchange the liability for another type of liability. The first swap contract was
negotiated in 1981 between Deutsche Bank and an undisclosed counter party. The
International Swap Dealers association

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4. Explain in detail the types of exposure and

measuring economic exposure.
Types of Exposure
There are different types of exposure to which a particular company-domestic or
internationalis exposed to. The types of exposure are related to two parameters:
1. One is related to the time of the transactions, the transactions and the flows of
money (payment and receivables) related to them and the other one to the aspect
of conducting international business in host countries.

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5. Elaborate on the tools of foreign exchange risk

management
and
techniques
of
exposure
management.
Tools of Foreign Exchange Risk Management
Various financial instruments are used by companies in India and abroad in order to
hedge the exchange risk. Such kinds of instruments are available to the company at
varying costs. The various tools that hedge the different kinds of risks are given
below:
Forward contracts: A forward contract is a non-standardized contract that takes
place between two parties for the purpose of selling or buying an asset at a
specified future time at a price that has already been agreed. The party who buys
the underlying position assumes a long position and the party who sells the asset
assumes a short position. Delivery price is the price that has been agreed upon. It is
one of the most common means of hedging transactions in foreign currencies. It
offers the ability to the
users to lock in a sale price or a purchase without the involvement of any direct
cost. It is also used by

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6. Write short note on:

a. Adjusted present value model (APV model)
b. Forced Disinvestment
a. Adjusted present value model (APV model)
Debt has an advantage over equity since the interest paid on debt is almost always
deductible from income while calculating corporate taxes, which is not the case for
dividends on equity. So, the post cost of debt is less than the pretax cost of debt.
Debt creates additional value for a project. How is this so? By
reducing the taxes paid, so adjustments to the calculation of the projects present
value must be made if it supports additional debt. Therefore, the contribution to
present value of issuing debt is calculated as the present value of tax savings. This
present value (PV) can then be added to the PV of a project calculated using the allequity cost of capital. The method of adding the tax benefits of debt to the

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