Department of Management Studies JNNCE,Shimgoga

II Sessional Test .15.05.2013 International Financial Management [12MBAFM426] Answer any one full question: 1. A. What is spread? Max marks:20 Max time: 45 Mins

[3 Marks]

B.The following rates appear in foreign exchange market Re/US $ spot rate: Rs.48.80/49.05 2 month forward rate: Rs 49.50/50.00 I.How many dollars should a firm sell to get Rs.49.50 million after 2 months? II. How many rupees does the firm require to pay to obtain US $ 2,00,000 in the spot market? [7 Marks] C.A foreign exchange trader gives the following quotes for Belgium frank spot, 1 month, 3 month and 6 month to the US based treasurer $0.02368/70 4/5 8/7 14/12 i.Calculate the outright rates for one, three and six months forward II.if the treasurer wished to buy Belgian francs three months forward, how much would he pay in dollars? III. if he wished to puechase us Dollars one month forward, how much would he have to pay in belgian francs? IV. calculate the premium or discount for one, three and six months forward rates in annual percentage terms? [10 Marks] 2. A. What is arbitrage? What are the types of arbitrage? B.Explain the purchasing power parity theory of forecasting exchange rate. [3 Marks] [7 Marks]

C.From the following data, calculate the possibilities of gain or loss in arbitrage and determine the arbitrage gain or loss if any. [10 Marks] Spot rate: FFR 6.00/S 6 month forward rate FFr6.0020/$ Annualised interest rate on 6 month US $ is 5% Annualised interest rate on 6 month FFr is 8%

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