FM04 International Finance

Assignment No.I
Assignment Code: 2012FM04A1 Last Date of Submission: 15th April 2012 Maximum Marks:100

Attempt all the questions. All the questions are compulsory and carry equal marks.

Section-A Ques. 1 Briefly explain the following: 1. Spot market and forward market. 2. Purchasing Power Parity (PPP). 3. Transaction Exposure versus Economic Exposure. 4. Methods of Translation Exposure. What factors affect a firms degree of transaction exposure in a particular currency? For each factor explain the desirable characteristics that would reduce the transaction exposure? Countries can address the internal problems with external solutions . Why might a country in severe recession consider devaluation of its currency? Why might a country experiencing high inflation consider appreciation of its currency attractive? Liberalization of Capital Account should be viewed as a process and not as a single event Comment Section-B Case Study Your company exports goods to country K. Your job as an international cash manager requires you to forecast the value of country Ks currency called Krank with respect to dollar. Explain how each of the following would effect the value of Krank, holding all other things equal. Combine the impact of all of these to develop an overall forecast of currency Kranks movement against dollar : i. ii. iii. US inflation has suddenly increased substantially whereas the inflation in country remains low. US interest rates have increased substantially while that of country K remains low. Investors of both countries are attracted to high interest rates. US income base has increased substantially but that of country K has remained unchanged US is expected to place a small tariff on goods imported from country K

Ques. 2

Ques. 3

Ques. 4

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FM04 International Finance

Assignment No.II
Assignment Code: 2012FM04A2 Last Date of Submission: 15th May 2012 Maximum Marks:100

Attempt all the questions. All the questions are compulsory and carry equal marks.

Section-A Ques. 1 Ques. 2 Ques. 3 (a) What are the sources of Foreign Capital? (b) What are the factors that evaluate foreign Project? What are the specific problems in connection with multinational working capital management? (a) (b) Explain how the weighted cost of capital for an MNC can be calculated? Suppose that a foreign project has a beta of 0.85 the risk free return is 12% and the required return on the market is estimated at 19%. What is the cost of capital for the project?

Ques. 4

Discuss the various techniques to manage Accounting Exposure. Section-B

Case Study : BLADE INC.

John, the CFO of Blade Inc. has decided to counter the decreasing demand for its roller blades by exporting the product to Thailand. He has also decided to import rubber and plastic equipments from Thailand to reap cost advantage of about 20 percent. Currently, about 10 percent of the companys sales are from Thailand. The company does not face much competition from other US companies. The other US manufacturers invoice the exports in US dollars whereas Blade does the invoicing in Thai bath. It has provided Blade a competitive advantage because Thai importers need not worry about the currency fluctuations. The primary Thai customer of Blades is committed to purchase a certain quantity for the next three years in case invoicing is done in Thai baht. Due to its strategy and highly quality of products, the company is sure of its future content. However, as a financial analyst, you are not as confident. Your doubt is due to the weakening of Thai economy on account of the Asian financial crisis. For this reason, you anticipate high inflation, diminished national income and continued depreciation of baht. These could force companies to adjust their spending. To convince John, you have developed a list of questions which you wish to present to the CFO of Blade. These are :

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i. ii. iii. iv.

How could high level of inflation in Thailand affect Blades assuming US inflation to remain constant. How would Blade be effected by competition from local firms in Thailand, and the US firms conducting business in Thailand. How could continued depreciation of Thai baht affect Blades In case Blades increases business in Thailand and e Experiences serious financial problems, are there any international agencies that the company could approach for loan or other financial assistance?

v.

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