1. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)

End Semester Examinations – OCTOBER 2014

m.com – i semester

INTERNATIONAL FINANCIAL INSTITUTIONS AND MARKETS

Duration: 3 Hours                                                                                          Max. Marks: 100

 

Section – A

1. Answer any SEVEN    Each carries 5 marks.                   (7 x 5  = 35)

 

1. Briefly explain the functions of IMF.
2. What is FCCB?
3. Calculate the arbitrage gains possible on Rs.10,00,000 from the middle rates given below. Assume there no transaction costs.

Rs. 76.200 = £1 in London          Rs.46.600 = $1 in Delhi        $1.5820 = £1

in New York

4. What do you understand by Nostro and Vostro?
5. Explain the following : FRA, Interest Rate cap and Interest rate floor.
6. DLF has issued 9% Bonds @ par value of Rs.1000 each and redeemed at a premium of 10% after 10 years from the date issue. The prevailing inflation rate is 8%. Calculate the duration of bond.
7. How does Forward contract differ from Future contract?
8. Distinguish between Bond valuation and Bond duration
9. On 03-11-2008 the spot rate is 1 US dollar = 45.36

The bank rates of interest in US and India are 8.5% and 4.5% respectively per annum. What would be forward rate for 3 months?

10. State meaning of the terms LIBOR and Repo.

 

Section – B

1. Answer any THREE Each carries 15 marks.                              (3 x 15   = 45)
2. Mr. Johnson has bought the following options on 1^st October 2014 as he predicts that the stock market will have bearish trend in the month of October 2014,

(a) TCS October call option at a strike price of Rs.500 with a premium of @ Rs.20  per share.

(b) TCS October put option at a strike price of Rs.550 with a premium of @ Rs.30 per share

Prepare the table showing tentative spot price for a period of ten trading days and net profit/loss for the same and at what tentative spot price, can call or put option be activated?

 

12. What is ADR? Explain the types of ADR issues and issue mechanism.

 

13. Explain the kinds of bonds that are offered in the international Bond Market?
14. What are instruments that are issued in the International Money Market?

 

15. Future – Long Position

Day                                               Today

Stock name                                  Infosys

Current market price                 Rs.2400 (also the purchase price)

Target                                           Rs.2500 (as per the analyst’s recommendation)

Time                                             1 week (expected time for the target to be achieved)

Lot size of Infosys                      125shares (minimum number of shares to be purchased)

Initial margin payable   15% on the contract value

Settlement date               26th October 2014 (last Thursday/ contract expiry date)

Possible scenario:

Closing price on day 1              Rs. 2375

Closing price on day 2              Rs. 2450

Closing price on day 3              Rs. 2500

Closing price on day 4              Rs. 2300

 

Prepare table showing Net profit or Loss and obligation or Marked – To Market margin at the end of each day for the period of four days.

 

Section – C

 

1. Compulsory Case study.                                                                         (1 x 20 = 20)

 

1. Futures Long and Short Positions

For a Future contract in Canadian dollar, the initial margin and maintenance margin prescribed by the exchange are USD 4,000 and USD 3,000 respectively. A contract is concluded at a price of USD 0.75. The settlement price in the exchange at end of four days subsequent days are as follows:

 

Day 1	USD  0.745
Day 2	USD  0.740
Day 3	USD  0.730
Day 4	USD  0.755

 

At the end of each day, the margin accounts of both the buyer and seller will be adjusted based on the settlement price for the day. Where the margin goes below the maintenance level, the buyer/ seller will be required to reimburse to bring the balance to the initial level. If the margin is more than the initial level, the member concerned is free to withdraw the excess. Tabulate the adjustments to be made in the margin money of buyer and seller assuming that the lot size of USD is 1,00,000 and opening price is USD 0.750.

 

1. Kenwood Industries Ltd has $5,00,000 foreign loan outstanding at an interest rate at 8% p.a. The interest rate is reset every six months and interest is payable at the end of six months period on 30^th September and 31^st The treasurer expects that interest of 9% p.a will prevail for a period of starting from 1^st April to September. He entered into a forward rate agreement for locking interest rate at 9%p.a.

 

What would be the financial implication?

• if rate of interest is 8.2 % a.p. and

 

• if rate of interest is set at 10 % a.p. (if LIBOR goes to 8.2% or 10%)?

 

 

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