ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)
END SEMESTER EXAMINATION- MARCH/APRIL 2013
MIB – II SEMESTER
INTERNATIONAL FINANCIAL INSTITUTIONS AND MARETS
Duration: 3 Hours Max. Marks: 100
Section – A
I) Answer ANY SEVEN questions. (7X5=35)
1. “The interbank market uses quotation conventions adopted by ACI.” What are these conventions?
2. With reference to International Banking, explain Foreign Exchange risk.
3. “The RBI’s decision to cut rates will help revive investment in the economy,” Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, said, adding that the economy was beginning to bottom out after a long slowdown. He was referring to the Repo rate and CRR. Explain how?
4. India has a BBB- rating from S&P, the lowest investment grade among the BRIC group of large emerging economies and one notch above “junk” status. In the light of the above, write a note on credit rating symbols and junk bonds.
5. Suppose an edible oil importer wants to import edible oil worth USD 100,000 and places his import order on July 15, 2008, with the delivery date being 4 months ahead. At the time when the contract is placed, in the spot market, one USD was worth say INR 44.50. But, suppose the Indian Rupee depreciates to INR 44.75 per USD when the payment is due in October 2008, the value of the payment for the importer goes up to INR 4,475,000 rather than INR 4,450,000. What would be his hedging strategy?
6. Explain the role of IMF as a centerpiece of world monetary order.
7. 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?
8. Distinguish between futures and forwards.
9. Differentiate between Eurobonds and Foreign Bonds.
10. Write a note on Fannie Mae.
Section – B
II) Answer any THREE questions (3×15=45)
11. Mr Patil 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 Bangalore. He owns a large house in Thane — 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 20,000. 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?
12. 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?
13. (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?
(b) The market price of a Rs. 1000 par value bond carrying a coupon rate of 14% and maturing after 5 years is Rs. 1050. What is the YTM on this bond? What is the approximate YTM?
(8+7)
14. What is a letter of credit? Explain its working in the light of it being a product offered by international banks.
15. (a) 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%.
(b ) From the following information you are required to calculate (a) ready bill buying rate, (b) 2 months forward buying rate for demand bill, (c) ready rate for 60 days usuance bill, and (d) 2 months forward buying rate for 60 days usuance bill
Interbank rate USD
Spot USD 1= INR 42.6000/ 6075
1 month 3500 / 3600
2 months 5500 / 5600
3 months 8500 / 8600
4 months 1.1500 / 1.1600
5 months 1.3500/1.3600
6 months 1.5500/ 1.6600
Transit period is 20 days. Exchange margin is 0.10%.
(8+7)
16. (a) An importer-customer of a bank wishes to book a forward contract with the bank on 2nd August 2010 for sale to him of USD 150,000 delivery November 2010.
The spot rates on 2nd August 2010 are USD / INR 42.3700 / 3800 and the swap points are:
USD/ INR Spot August 0300/0400
Spot September 1100/1300
Spot October 1900/ 2200
Spot November 2700/3100
Spot December 3500/ 4000
(b) Euro is quoted in Singapore as under:
Spot EUR 1 = USD 1.0125/150
1 month forward 0.0050/0.0075
In the interbank market USD is quoted as under:
Spot USD 1= INR 42.1250/ 1375
1 month forward 6000/ 6100
The bank is required to load an exchange margin of 0.15% in the exchange rate for TT selling and 0.20% for bill selling.
A shipping company has asked the bank to quote the bank’s spot TT selling rate for a freight remittance of EUR 150,000 to Frankfurt.
What rates will the bank quote to the customer?
Section – C
III) Case study – Compulsory Question. (15+5 marks)
17. Suppose Mr X wants to open a multiplex 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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