St. Joseph’s College of Commerce (Autonomous)

End Semester Examination- April 2012

MIB –II Semester

 INTERNATIONAL FINANCIAL INSTITUTIONS AND MARKETS

Duration:  3 Hours                                                                                        Max. Marks: 100

Section – A

1. Answer ANY SEVEN                                            (7×5=35)

1. A bank issued a demand draft on Montreal for Canadian dollar 50,000 at CAD/INR 29.4850. However, after a few days the purchaser of the draft requested the bank to cancel it & repay the rupee equivalent to him. Assuming CAD is quoted in the Singapore Foreign Exchange market as USD/CAD 1.4541/4561 and in the interbank market USD/INR is 42.5275/5350, how much the customer will gain or lose on cancellation of the draft? Exchange margin on TT buying is 0.08%.
2. A trader writes a December put option with a strike price of $30. The price of the option is $4. Under what circumstances does the trader make a gain? What is the difference between entering into a long forward contract when the forward price is $50 and taking a long position in a call option with a strike price of $50?
3. What are the quotation conventions adopted by ACI?
4. Write a note on money market instruments.
5. If the spot rate is USD/INR 45.50/45.55 and one month swap points are given as 20/30, how is the forward rate calculated and why is this mechanism followed? GBP/USD Spot: 1.5677/1.5685 and GBP/USD 1 month Forward: 1.5575/1.5585. Calculate the forward premium/discount. What does the result indicate?
6. Write a note on products offered by International Banks.
7. What is the importance of IMF in today’s economy?
8. What are mortgage backed securities?
9. Distinguish between forwards & futures.
10. What are the different kind of bonds?

Section – B

1. Answer any THREE (3×15=45)

1. (a) Explain the buying & selling of options vs. underlying asset diagrammatically. What are American and European options?

(b) Today is April 3rd. Spot USD/INR:48.75/78

Spot April end: 5/8

Spot May end: 12/17

Spot June end: 20/30.

Find the quote on June 20th.

 

1. (a) You are planning a trip to Europe and Japan and want to change USD into Euros and yen. Your bank provides the following quotes:

	Bid	Ask
Euros	USD 1.194	USD 1.245
Yen	USD 0.009245	USD 0.00967

What is the bank’s bid ask spreads? How much would you lose if you converted USD 500 into Euros and USD 500 into yen and then back to USD?

• What is a bond? Consider an 8-year 12%coupon bond with a par value of Rs 100 on which interest is payable semi -annually. The required return is 14%. What is the value of this bond?

 

1. Mr Gupta has retired after what can be called a very fulfilling career with a leading engineering company. His only daughter is married and well settled in US. He owns a large house in Pune — worth about INR 80 lakh (INR 8 million), but he has limited savings (including PPF and EPF) of INR 10 lakh (INR 1 million) to generate any major income. He is not expecting any pension either. His worry now is to pay for his modest monthly expenses of INR 15,000. The only option he had earlier was to rent his house and move to a smaller house himself or to sell his house altogether and invest the proceeds to earn a higher monthly income. Either way, in his old age, he will be forced to look around for accommodation and keep on worrying about the rising rents — not a very happy prospect.

Is there a better way out for him?

1. What is a letter of credit? Explain its working in the light of it being a product offered by international banks.
2. On 27th December 2008,  Gitanjali Jewellers required State Bank of India to remit FFR 300,000 to France in payment of import of diamonds under an irrevocable LC. However due to the bank’s strike, State Bank of India could remit only on 4th January 2009. Interbank rates were as follows:

PLACE	27th December 2008	4th January 2009
Delhi                    (INR/USD) USD per INR 100	4.10/4.15	4.07/4.12
London               (GBP/USD)	2.7250/60	2.7175/85
Paris                     (GBP/FFR)	4.9575/90	4.9380/ 90

 

State Bank of India wishes to retain an exchange margin of 0.125%.  How much does Gitanjali Jewellers stand to gain or lose due to the delay?

 

 

 

 

Section – C

1.  Compulsory Question.                                                             (20 marks)

CASE STUDY

Suppose Mr Patel wants to open a shopping complex and is in need of funds for the same. To raise funds, Mr X can sell his future cash flows (cash flows arising from sale of movie tickets and food items in the future) in the form of securities to raise money. In the light of the above example explain the process of securitization.

 

 

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