| S.T. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)
END SEMESTER EXAMINATION – MARCH/april 2015 M.I.B. – II SEMESTER |
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| P211204:INTERNATIONAL FINANCIAL INSTITUTIONS AND MARKETS | |||||||||||||||
| Duration: 3 Hours Max. Marks: 100 | |||||||||||||||
| SECTION – A | |||||||||||||||
| I) | Answer any SEVEN questions. Each carries 5 marks. (7×5 =35) | ||||||||||||||
| 1. | What is meant by Letter of credit? Why is it used and brief about parties to Letter of credit. | ||||||||||||||
| 2. | Calculate the inflation rate in India if the Spot rate of 1 $ = Rs 60, Forward rate 1 $ = Rs 62 and Inflation rate in US is 4 %. Also bring out the relation between exchange rate differential and inflation rate as stated by “Interest Rate Parity Theorem. | ||||||||||||||
| 3. | What are derivatives? Write short notes about the 4 types of derivatives. | ||||||||||||||
| 4. | Calculate the Yield to Maturity of the bond from the given data
a)Coupon rate is 12% b) Face value = Rs 850 c) Redemption is at a premium of 15 %, d) Current market price = Rs 795 , term = 5 years. |
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| 5. | What is direct quotation? Also write notes on bid rate and ask rate. | ||||||||||||||
| 6. | Appreciation of foreign currency is beneficial to the importer. Elucidate the correctness of this statement with a numerical. | ||||||||||||||
| 7. | What is a money market instrument? Explain in brief about any 2 money market instruments. | ||||||||||||||
| 8. | What is meant by a Forward Rate Agreement? Also explain briefly the concept of caps and floors. | ||||||||||||||
| 9. | Write a note on options and its types?
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| 10. | An Indian importer imported goods worth 10,000 $ when the spot rate was 1$=Rs 60 .The importer had taken a forward cover at the forward rate of
1 $ = Rs 62. At the time of payment, 1 $ = Rs 65, is the forward hedge beneficial to the importer? |
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SECTION – B |
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| II) | Answer any THREE questions. Each carries 15 marks. (3×15=45) | ||||||||||||||
| 11. | What is securitization? Write notes on securitization process and what do you understand by Fannie Mae and Ginnie Mae? | ||||||||||||||
| 12. | From the following data, calculate the value, duration and volatility of the bond
(a)Par value = Rs 750 (b) Coupon rate = 13 % paid semiannually (c) Tenure = 4 years (d) Expected rate of return is 2 % above the T-Bill rate. The interest rate of T-bill is 12% |
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| 13. | Mr. A buys a European call option to deal with shares of “Infosys “with 4 months maturity and strike price of Rs 130 and premium of Rs 25. You are required to
a) Identify the breakeven point and b) Prepare pay off profile of Mr. A and writer and plot it on a rough graph, if the market price on the date of maturity is:
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| 14. | What do you understand by the term “Bond”? Explain briefly about the different types of bonds and the types of risk involved in investment in bonds. | ||||||||||||||
| 15. | a) Calculate 2 month spot rate of US $ if forward rate is 1 $ = Rs 62 and forward premium is 10% p.a.
b) What do you understand by duration of a bond? Bring out the relationship between duration and term of a zero coupon bond and a coupon bond.
c) What is cross country quote and write the cross country quote for INR/GBP in the following case USD/INR = .016 ,USD/GBP = 1.52 d)From the following quote identify the spread and calculate its percentage 1 $ = 61.05-61.058 e) Write brief note on European option and American option.
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| SECTION – C | |||||||||||||||
| III) | Case Study (20 marks) | ||||||||||||||
| 16. | a) The spot exchange rate is 1 GBP= Rs 80. Rate of interest in Britan is 8% per annum and in India is 6% per annum. An arbitrageur would like to exploit the opportunity if any by entering into a forward contract for 2 months. Based on the following information, determine the possibility of an arbitrage and how it can be exploited.
Given the Actual Forward rate is 1 GBP = Rs 82 and the arbitrageur deals with 1000 GBP.
b)Write a note on International Fischer’s effect.
c)Find the real rate of interest , if inflation rate is 5 % and nominal rate is 12%
d)Futures are standardised forwards. Is the statement true? Also highlight the differences between forwards and futures. (10+3+2+5)
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