- JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)
End Semester Examinations – OCTOBER 2014
m.com -III semester
INTERNATIONAL FINANCIAL MANAGEMENT
Duration: 3 Hrs Max. Marks: 100
Section – A
- Answer any SEVEN Each carries 5 marks. (7 x 5 = 35)
- Write a note on the various International business methods.
- Explain the components of International Financial system.
- Briefly explain the agencies that facilitate international flow.
- Explain the factors affecting international trade.
- Write a note on the exchange rate system in India.
- Mention the subjective factors to be considered while assessing a particular country for investment in Country Risk analysis.
- What are the issues involved in foreign investment analysis?
- What are the considerations an MNC has to keep in mind while investing in other country with special reference to tax?
- What are the various international project evaluation techniques considered for international investment.
- Calculate the Weighted average cost of capital when the capital structure shows:
(a) existing debt of $5.0 million at 10% for 6 years (tax rate is 30%)
(b) new debt of $ 3.0 million at 8 % for 10 years with a floating cost of $ 2,00,000
(c ) existing equity shares of $ 7.0 million ($ 15 per share), EPS $ 4, growth rate of 5% and dividend pay-out ratio of 50% and
(d) proposed equity share(1,00,000 shares) to be sold at $15 with $ 2,00,000 floatation cost.
Section – B
- Answer any THREE Each carries 15 marks. (3 x 15 = 45)
11) What are the components of Balance of Payments? What is meant by equilibrium and disequilibrium in balance of payment? What are the measures taken to overcome disequilibrium in the Balance of payment?
12) An Indian importer imports goods worth $62,500. He expects an appreciation of pound. So he goes for hedging the risk. The currency market has the following data:
(a) spot rate on the date of the contract Rs. 68,00/£
(b) three month forward rate Rs. 68.50/£
(c) Strike rate in a three-month call option Rs. 68.60/£ with 5% premium
(d) Strike rate in a three-month put option Rs. 68.80/£ with 5% premium
( e) spot rate on the date of payment/maturity Rs. 68.90/£
Will he go for a hedge? If so, which of the options he will select?
13) Briefly explain the international working capital management policy from the point of view of a firm as well as units and also elucidate on the objectives aimed to be achieved through Working capital management for an international firm.
14) Explain the ways in which the inventory, receivables and cash in managed internationally by the parent as well as the subsidiary
15) Elucidate on the risks involved in international project and the ways to mitigate the same.
Section – C
- Compulsory Case study. (1 x 20 = 20)
- Sparton a US company is considering pre-development of a subsidiary company in Singapore, that will manufacture and sell tennis rackets locally. Spartan management has obtained the following relevant information.
(i) Initial Investment :-
An estimated 20 million Singapore $ which includes funds to support working capital would be needed for the project. This is given at the existing spot rate of 0.50 USD/Singapore $
(ii) Life cycle:-
The projects life cycle is expected to end in 4 years. The host government has promised to purchase the plant from the parent after 4 years
(iii) Price and Demand:-
| Year | Price/unit | Demand (units) |
| 1 | Singapore $350 | 60000 |
| 2 | Singapore $350 | 60000 |
| 3 | Singapore $360 | 100000 |
| 4 | Singapore $380 | 100000 |
The estimated price and demand schedule during each of the next 4 years is as follows:
(iv) Cost: – the variable cost for material, labour etc., per unit are as follows;
| Year | Variable
Cost per unit |
| 1 | Singapore $ 200 |
| 2 | Singapore $200 |
| 3 | Singapore $ 250 |
| 4 | Singapore $ 260 |
The expenses of leasing the extra office space is 1 million Singapore $ per year. Other annual overhead expenses are expected to be Singapore $ 1 million per year
(v) The exchange rate:
The rate of exchange is USD 0.5 per Singapore $. Spartan uses the spot rate as its best forecast of exchange rate that will exist in future period.
(vi) The host country taxes on income earned by the subsidiary:-
The Singapore government will allow Spartan to establish the subsidiary and will impose a 20% tax rate on income. In addition, it will impose a 10% withholding tax on any funds remitted by the subsidiary to the parent.
(vii) The US government taxes on income earned by Spartan subsidiary; the US government will allow a tax credit on taxes paid in Singapore.
(viii) Spartan subsidiary plans to send all the net cash flows received back to the parent at the end of the year
(ix) Depreciation on plant and equipment is at a maximum of 2 million Singapore $ per year.
(x) Salvage value of 12 million Singapore $will be paid by the Singapore government at the end of 4 years.
(xi) Discounting rate is 15%.
Calculate NPV.
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