ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)
END SEMESTER EXAMINATION – SEPT/OCT. 2015
B.B.M. – V SEMESTER
FIN 505: INTERNATIONAL FINANCE (ELECTIVE: FINANCE)
Duration: 3 Hours Max. Marks: 100
SECTION – A
I)	Answer ALL the questions. Each carries 2 marks. (10×2=20)
	1.	Why buying a put differs from selling a call? What do they believe in?
	2.	Mention any two methods of Option valuation.
	3.	Write a note on Purchase Parity formula to calculate future spot rate for the first year and 4^th year.
	4.	How do you minimize Exchange risks?
	5.	What are the cash outflows for the overseas investment projects?
	6.	What is the importance of Swap points in the determining a forward rate?
	7.	Is it possible to have bid and ask rates same?
	8.	I buy a put at strike price of Rs. 500 per share at a premium of Rs. 80 per share for 100 share holdings. The market price on the expiry date is Rs. 450 per share. How much the option writer gain/lose?
	9.	I sell a call at strike price of Rs. 350 per share at a premium of Rs. 50 per share for 100 share holdings. The market price on the expiry date is Rs. 370 per share. How much the option writer gain/lose?
	10.	From the following data calculate forward rate after a year: Spot rate of of Euro 0.87= 1 $ Annualized interest rate $ is 8.3% Annualized interest rate on Euro is 10.5%
SECTION – B
II)	Answer any FOUR questions. Each carries 5 marks. (4×5=20)
	11.	Explain interest rate swap and currency swap.
	12.	The overseas funding of project in India from USA is Rs.30,00,00,000 (1$= Rs.66.67). The parent company acquires this funds in the ratio of 60: 40 (debt: equity). The equity costs 12% and debt costs 9%. The US tax benefits on debt funds is 30%. a) Calculate Debt and equity in dollars. b) Calculate WACC for the purpose of discounting cash flows.[Workout nearest to 10)
	13.	Explain the following: a) Exchange rate fluctuation b) Expropriation
	14.	Two countries, the United States and England, produce only one good, wheat. Suppose the price of wheat is $3.25 in the United states and Pound 2.35 in England. a) According to the law of one price, what should the $:Pound exchange rate be? b) Suppose the price of wheat over the next year is expected to rise to $3.5 in the United States and to Pound 1.6 in England. What should be the one $:Pound forward rate be?
	15.	Explain any five take off strategies with diagrams
	16.	Give the sketch on the cash outflows and inflows to evaluate a project from the overseas investor point of view?
SECTION – C
III)	Answer any THREE questions. Each carries 15 marks. (3×15=45)
	17.	a) Calculate the arbitrage possible on Rs.10,00,000 from the middle rates given below. Assume there are no transaction costs? Rs. 76.200 = Pound 1 in London Rs. 46.600 = $1 in Delhi $1.5820 = 1 Pound in New York. b) One year Forward rate is US$0.8 = Australian Dollar 2.0. Interest rate of Australia is 6% and US 4%. Convert them into direct quote from US and Calculate Spot rate one year before.
	18.	Explain the following terms: a) ADR issue procedure b) Differences between futures and forwards contract
	19.	Write brief notes on the following: a) Direct quote and Indirect quote with examples. b) Cross rate and Bid and ask rate relationships. c) Differences between ADR and GDR.
	20.	Explain FDI policy of Government of India which is effect from 12^th May 2015.
	21.	a) Spot rate is Rs. 64.09/$. Three month forward rate is Rs. 65.20/$. Speculator’s own estimate is that the future spot rate after three months should be Rs. 64.60/$. Will the speculator go for a forward contract if he has $ 20,000 at his disposal? b)Plant is set up in India by a multinational corporation for Rs.20,00,000. The life of the plant is for three years. The rate of depreciation is 15% and additional depreciation is 20% for the first year only. If the plant is expected to be sold at the end of third year for Rs. 6,00,000, What is the terminal cash inflow? Assume corporate tax rate is 30%(including surcharge and educational cess)
SECTION – D
IV)	Case Study (1×15=15)
	22.	During 2002, the yen went from $0.0074074 to $0.0084746. On July 2, 1997, the Thai baht fell 17% against dollar. In April1, 1998, was an ill fated date in Yugoslavia. On that day, government devalued the Yugoslav dinar, setting its new rate at 10.92 dinar to the dollar, from 6.0 dinar previously. The Afghanistan’s currency has perverse tendency to go up whenever sitting government fall. So as soon as commentators labeled Osama bin Laden the Prime suspect in the September 11 World Trade Centre attack, currency traders figured the Taliban would become a target of the United States, bringing prospects of the new government and perhaps, the economic development – and a rise in the afghani’s value. So it has. Under the Taliban, the exchange rate –quoted as the number of Pakistani rupees it takes to buy 1,00,000 afghanis – fell to 85 rupees. September 11 galvanised the market. By mid –November 2001, the military gains by the Northern Alliance opposition pushed the exchange rate up to 165. Similarly between September 11 and mid November, the dollar went from 78,000 to 34,000. Since April 2015 to September 2015 Indian rupee against dollar fell down from 63.97 to 66.67 even though world crude oil price went down from $110 to $56 in the international trade. China Yuwan appreciated last year, suddenly devalued by China government to increase the export. Therefore appreciation and depreciation of one currency is not depending on the local government policies rather how the whole world looks at your economy. Required: a) By how much did the yen appreciated? b) By how much has the dollar appreciated against baht? c) By how much has the dollar appreciated against the dinar? d) By how much has the afghani appreciated against the rupee? e) By how much appreciation /depreciation did the dollar against the afghani during the this two month period? f) How much the afghani appreciated/depreciation?

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