1.

An MNC company in USA has surplus funds to the tune of $ 10 million for six months. The Finance Director of the company is interested in investing in for higher returns. There is a Double Tax Avoidance Agreement (DTAA) in force between USA and Germany. The company received the following information from London: /$ Spot 6 months forward Rate of interest for 6 months (p.a.) tax applicable for interest income 0.4040/41 67/65 5.95% 6.15% Withholding 22% Tax as per DTAA

10% If the company invests in , what is the gain for the company ? 2. BC Export Co are holding an Export bill in United States Dollar (USD) 1,00,000 due 60 days hence. Rate at which deal was finalized @ Rs .47.50 per USD. The Company is worried about the fluctuating exchange rate. The Firms Bankers have agreed to make advance against the bill after deduction of interest 9% per annum and also quoted a 60- day forward rate of Rs.48.10. The cost of capital for the exporter is 15% p.a. Advise whether the exporter will agree to the bankers offer. 3. Spot rate 1 US $ = Rs.47.7123 180 days Forward rate for 1 US $ = Rs.48.6690 Interest rate in India = 12% p.a Interest rate in USA = 8% p.a An arbitrageur takes loan of Rs.40,00,000 from Indian Bank for 6 months and goes for arbitrage. What is his gain or loss ? (Take 1 year = 360 days) 4. An importer customer requested on January 31, 2009 his banker to remit Singapore Dollar (SGD) 30,00,000 under an irrevocable LC. However, due to bank strikes, the bank could effect the remittance only on February 6, 2009. The interbank market rates were as follows: January,31 Bombay US$1 London Pound 1 Pound 1 Rs.47.85/47.90 US$ 1.7840/1.7850 SGD 3.1575/3.1590 February 6 47.91/47.95 1.7765/1.7775 3.1380/3.1390

The bank wishes to retain an exchange margin of 0.125%. How much does the importer stand to gain or lose due to the delay in remittance ? 5. In March, 2008, the Zed Pro Industries makes the following assessment of dollar rates per British pound to prevail as on 1.9.2008: $/Pound 1.60 1.70 1.80 1.90 2.00 (i) (ii) What is the expected spot rate for 1.9.2008? Probability 0.15 0.20 0.25 0.20 0.20

If, as of March, 2008, the 6-month forward rate is $ 1.80, should the firm sell forward its pound receivables due in September, 2008? 6. An exporter is a UK based company. Invoice amount is $3,50,000. Credit period is thre e months.

Exchange rates in London are : Spot Rate 3-month Forward Rate ($/) 1.5865 1.5905 ($/) 1.6100 1.6140

Rates of interest in Money Market : Deposit $ 7% 5% Loan 9% 8%

Compute and show how a money market hedge can be put in place. Compare and contrast the outcome with a forward contract. 7. An Indian exporting firm, Rohit and Bros., would be cover itself against a likely depreciation of pound sterling. The following data is given : Receivables of Rohit and Bros Spot rate date 3 months interest rate : : What should the exporter do ? 8. The rate of inflation in USA is likely to be 3% per annum and in India it is likely to be 6.5%. The current spot rate of US $ in India is Rs.43.40. Find the expected rate of US $ in India after one year and 3 years from now using purchasing power parity theory. : : : 500,000 Rs.56,00/ Payment 3-months India : 12 per cent per annum UK : 5 per cent per annum

9. On April 1, 3 months interest rate in the UK and US $ are 7.5% and 3.5% per annum respectively. The UK /US $ spot rate is 0.7570. What would be the forward rate for US $ for delivery on 30 th June ? 10 .If the interest rate for the next 6 months for the US$ is 1.5% (annual compounding). The interest rate for the is 2% (annual compounding). The spot price of the is US $ 1.665. The forward price is expected to be US$ 1.664. Please determine correct forward price and recommend an arbitrage strategy. 11. Your forex dealer had entered into a cross currency deal and had sold US $ 10,00,000 against EURO at US $ 1 = EUR 1.4400 for spot delivery. However, later during the day, the market became volatile and the dealer in compliance with his managements guidelines had to square up the position when the quotations were: Spot US $ 1 INR 31.4300/4500 1 month margin 25/20 2 months margin 45/35 Spot US $ 1 EURO 1.4400/4450 1 month forward 1.4425/4490 2 months forward 1.4460/4530 What will be the gain or loss in the transaction? 12 You have following quotes from Bank A and Bank B: SPOT 3 months 6 months Bank A USD/CHF 1.4650/55 5/10 10/15 Bank B USD/CHF 1.4653/60

SPOT 3 months 6 months Calculate : (i) (ii)

GBP/USD 1.7645/60 25/20 35/25

GBP/USD 1.7640/50

How much minimum CHF amount you have to pay for 1 Million GBP spot?

Considering the quotes from Bank A only, for GBP/CHF what are the Implied Swap points for Spot over 3 months 13 On 30th June 2009 when a forward contract matured for execution you are asked by an importer customer to extend the validity of the forward sale contract for US$ 10,00 0 for a further period of three months. Contracted Rate US$1 = Rs.41.87 The US Dollar quoted on 30.6.2009 Spot Premium July Premium August Premium September Rs. 40.4800/Rs. 40.4900 0.1100/0.1300 0.2300/0.2500 0.3500/0.3750

Calculate the cost for your customer in respect of the extension of the forward contract. Rupee values to be rounded off to the nearest Rupee. Margin 0.080% for Buying Rate Margin 0.25% for Selling Rate 14. Wenden Co is a Dutch-based company which has the following expected transactions. One month: Expected receipt of One month: Expected payment of Three months: Expected receipts of Spot rate ( per ): One month forward rate ( per ): Three months forward rate ( per ): Money market rates for Wenden Co: Borrowing One year Euro interest rate: One year Sterling interest rate: Assume that it is now 1 April. Required: (a) (b) 15. Calculate the expected Euro receipts in one month and in three months using the forward market. Calculate the expected Euro receipts in three months using a money-market hedge and recommend whether a forward market hedge or a money market hedge should be used. 4.9% 5.4% Deposit 4.6 5.1 2,40,000 1,40,000 3,00,000 1.7820 0.0002 1.7829 0.0003 1.7846 0.0004

The finance manager has collected the following information:

CQS plc is a UK company that sells goods solely within UK. CQS plc has recently tried a foreign supplier in Netherland for the first time and need to pay 250,000 to the supplier in six months time. You as financial manager are concerned that the cost of these supplies may rise in Pound Sterling terms and has decided to hedge the currency risk of this account payable. The following information has been provided by the companys bank:

Spot rate ( per ): Six months forward rate ( per ): Deposit One year Pound Sterling interest rates: Euro interest rates:

1998 0002 1979 0004

Money market rates available to CQS plc: Borrowing 61% 54% One year 40% 35%

Assuming CQS plc has no surplus cash at the present time you are required to evaluate whether a money market hedge, a forward market hedge or a lead payment should be used to hedge the foreign account payable. 16. M/s Omega Electronics Ltd. exports air conditioners to Germany by importing all the components from Singapore. The company is exporting 2,400 units at a price of Euro 500 per unit. The cost of imported components is S$ 800 per unit. The fixed cost and other variables cost per unit are Rs. 1,000 and Rs. 1,500 respectively. The cash flows in Foreign currencies are due in six months. The current exchange rates are as follows: Rs/Euro Rs/S$ After six months the exchange rates turn out as follows: Rs/Euro (1) (2) 51.50/55 27.20/25 52.00/05

Rs/S$ 27.70/75 You are required to calculate loss/gain due to transaction exposure. Based on the following additional information calculate the loss/gain due to transaction and operating exposure if the contracted price of air conditioners is Rs.25,000 : (i) the current exchange rate changes to Rs/Euro Rs/S$ elasticity of demand is estimated to be 1.5 (iii) Payments and receipts are to be settled at the end of six months. 51.75/80 27.10/15 (ii) Price