Beruflich Dokumente
Kultur Dokumente
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Part II
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International Finance and Trade
Explain how the exporter can generate funds in dollars after 30 days, without being exposed
to exchange risk. You are given the following exchange and interest rates.
Spot : Rs.60/ ∈ Rs.35/SFr Yen 120/ SFr Rs.22/S$
1-month Forward : Rs.61/ ∈ Rs.36/ SFr Yen 115/ SFr Rs.21/S$
1-month : Rupees – 12% SFr – 6% Yen – 2%
Euro – 7% interest S$ – 3%
45. You are given the following quotes.
NKr/SFr HK$/SFr
Spot 5.43/5.52 6.12/6.31
3-month forward 4/3 8/7
Interest rates prevailing are as follows:
Norweigian Kroners 12.5 - 13%
Hong Kong Dollars 13.5 - 14.0%
Banks add a spread of 0.5% to the above interest rates. Assuming you are a Norweigian
importer and have payables in Hong Kong $ maturing after 90 days, what is the best
strategy for hedging the exposure?
46. A Newzealand exporter expects to receive $1,000,000 in three months time. The exchange rates
prevailing are as follows:
Spot (NZ$/$) : 1.55/1.57
Forward (NZ$/$) : 1.53/1.55
3 months interest rates are as follows:
$ (%) : 6.10/6.30
(NZ$/$) (%) : 5.15/5.30
What strategies can the Newzealand exporter adopt to hedge the exposure?
47. An Indian importer has to settle a bill for S$ 100,000.
The exporter has given the Indian company two options.
i. Pay immediately without any interest charge.
ii. Pay after 3 months, with interest @6% p.a.
The importer’s bank charges 18% on overdrafts. If the exchange rates are as follows, what
should the company do?
Spot (Rs./ S$) : 22.00/22.30
3-month (Rs./ S$) : 22.90/23.20
48. A German subsidiary of a US multinational needs to raise funds to meet its working capital
requirements. Banks in Germany are prepared to lend at 8%. An additional service charge
of 0.5% is payable. The parent company is in a position to lend to the subsidiary. Rate of
interest applicable in USA is 7%. Meanwhile, the subsidiary has come to know that the rate
of interest in Switzerland is very low at only 3%. If the German Government charges a
withholding tax of 10% on interest in the case of funds borrowed from abroad, what is the
best alternative available?
49. A Japanese multinational is working out its cash management strategy for the month of
April, 2003. It has identified the following foreign exchange transactions which have to be
settled with minimum exposure.
01.04.03: The company will have to make payment of ∈ 500, 000 towards imports from
Germany. It will have to remit A$ 1,000,000 to its subsidiary in Sydney, Australia. It will
receive ∈ 400, 000 from a customer in India. The company will export goods worth
SFr 20,000,000 payment for which will be received at the end of the month.
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30.04.03: The company will have to pay S$ 1,000,000 towards imports earlier made from a
supplier in Singapore. The company will receive $ 1,000,000 from a customer who has
imported its goods two months back.
You are given the following information.
Spot rates on 01.04.03 : Yen 128/ ∈ A$ 1.71/ ∈ SFr 1.5/ ∈
S$ 2.00/ ∈ $ 1.25/ ∈
1-month forward rates (delivery) : Yen 125/ ∈ A$ 1.72/ ∈ SFr 1.48/ ∈
S$ 2.02/ ∈ $ 1.27/ ∈
The one-month interest rates prevailing on 01.04.03 are as follows:
$ – 6% Yen – 1% ∈ – 3.5%
SFr – 2% S$ – 3% A$ – 6%
Explain how the company can manage its foreign exchange exposure.
50. A multinational based in Zurich, Switzerland is planning to invest NZ $ 1,000,000 in
Newzealand for a period of one year. The project is expected to yield post-tax returns of
20% in Germany. You are given the following information and asked to determine which of
the two would be the better alternatives.
a. Offer from a Swiss bank to swap NZ $ for SFr at an exchange rate of NZ $ 1.2/SFr.
Interest will be charged on the NZ $ loan at a rate of LIBOR + 1%. The current rate
of LIBOR is 3.0%. At the end of the year, the bank will swap NZ $ for SFr at the
same exchange rate.
b. Leave the exposure uncovered. The present spot rate is NZ $ 1.1915/SFr. Six-month
LIBOR rates are as follows.
NZ $ – 3% SFr – 2%
The LIBOR rates are expected to hold steady for the next one year.
Assume that the corporate’s credit rating allows it to access funds in both NZ $ and SFr at
LIBOR + 0.5%.
51. An Indian exporter has bagged a contract to supply garments to a departmental store in UK.
The buyer has agreed to invoicing either in Sterlings or in Dollars. The Sterling price per
garment will be 4. The contract will be executed one month from now. It is expected that
from the time of shipment to negotiation of the LC, another month will lapse. If the
following are the relevant spot rates and interest rates and the exporters’ total costs are
Rs.200 per garment which currency would you choose for invoicing?
Interest rates : £ : 8% $ : 5% Rs.:15%
Spot rate : Rs.59.00/£ Rs.35.50/$
1-month forward rate : Rs.60.00/£ Rs.35.75/$
2-month forward rate : Rs.61.00/£ Rs.36.00/$
52. Assume that you are free to borrow/lend in any market and that active spot and forward
markets are accessible to all parties in Rupee against any currency.
The market rates are as under:
Rs./S$ spot 24.8750 25.1250
3-m forward 25.6195 25.9805
3-m interest rates Rs. 17.50% 18.50%
S$ 5.75% 6.25%
Verify whether an opportunity for covered interest arbitrage exists.
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International Finance and Trade
53. Interest rates for three months in US and Canada are as follows:
Borrow Invest
US$ 4.5% 4%
Canada$ 1.57% 1.55%
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61. Bharat Leathers and Piaco manufacture leather products and are based in India and Italy
respectively. Both these firms export major share of their output to the USA. Invoicing
currency for both the firms is US$.
Exchange rates
Inflation rates during the last year
Current spot Spot one year ago
Rs./$ : 44.00 Rs./$ : 42.00 India : 5%
Lit/$ : 2140.00 Lit/$ : 2050.00 Italy : 3%
USA : 1.5%
a. Compute the nominal depreciations of rupee and Lira against the US$ over the last
one year.
b. Compute the real depreciations of rupee and Lira against the US$ over the last one year.
c. Comment on the export competitiveness of Bharat Leathers vs Piaco.
62. Sunil Bansal, a computer engineer in Stockholm decides to remit 1 million of Swedish
kroners by SWIFT to his father Ajay Bansal on June 30, 2003 to purchase a flat in Kolkata.
A foreign bank in Kolkata offered a rate of Rs.5.90/SKr to Ajay Bansal. However, Ajay
Bansal requested his banker (a private sector bank) to get a better rate. The branch manager
contacted his dealings office at Mumbai for the rate. The dealer in Mumbai has the option
to cover the transaction through Bahrain or Singapore. The spot exchange rates at Mumbai,
Bahrain and Singapore markets on June 30, 2003 are given below:
Mumbai : Rs./US $ : 47.20/22
Rs./£ : 75.95/97
Bahrain : SKr/£ : 12.7532/39
Singapore : SKr/$ : 7.9652/62
You are required to determine, which market dealer should opt to cover the position.
Assume that an exchange margin of 0.005 paise is to be loaded in the rate.
Calculate the gain or loss to the customer, if he relies on the rate quoted by his banker.
Show your working nearest to the rupee.
63. An importer in UK has a payable of Euro 500,000 after 3 months. He has collected the
following information from his banker.
Euro/£ spot : 1.4200/1.4210
3 months forward : 1.4245/1.4256
3 months interest rates (p.a.)
Euro: 2.60% – 2.80%
£: 3.00% – 3.20%
Which of the following would you recommend for covering the exposure through?
a. Forward market
b. Money market.
64. On April 01, 2003 Swastik Industries, a leading steel importer from Mumbai obtained a
forward contract from Citibank Mumbai to buy US $1million for settling their
payable to the supplier in Germany on May 31, 2003. The US Dollars were quoted in the
local interbank market as under:
April 01, 03 Rs./$ Spot 47.19/20
1-month forward 9/10 paise
2-months forward 19/20 paise
On May 01, 2003 the supplier informs the importer that the consignment can be shipped and
delivered in June 2003. Hence the importer requested Citibank Mumbai to extend the contract
to June 30, 2003. The US Dollars were quoted in the local interbank market as under:
May 01, 2003 Rs./$ Spot 47.02/03
1-month forward 7/8 paise
2-months forward 13/14 paise
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Citibank Mumbai quoted the exchange rates by loading a margin of 0.20%. The bank
further agreed to offer a better rate by 4 paise while quoting the rates to the importer.
You are required to calculate the
a. Extension charges, and
b. Net cash outflow of the company as on June 30, 2003.
65. A multinational company in Germany has surplus funds of Euro 2 million for three months.
The treasury manager wants to toy with the idea of investing funds in currencies other than
that of the home currency. He has collected the following information on the exchange rates
and interest rates:
$/Euro spot 1.1410/12
3-month forward 20/19
£/$ spot 0.6217/19
3-month forward 13/14
3-months interest rates (p.a.)
$ : 2.6%/2.8%
£ : 3.00%/3.6%
Euro : 3.2%/3.4%
You are required to determine, in which market the MNC should invest to have more
returns, without exposing the investment to exchange risk.
66. The following rates were prevailing on June 30, 2003.
Spot Rs./$ 47.40/45
$/Euro 1.1410/1.1415
Rs./Euro 53.85/90
You are required to:
a. Verify whether there is any scope for three point arbitrage.
b. Calculate the arbitrage profit if you have Rs.1 million.
c. Find out the limits of Rs./Euro exchange rates to ensure no scope of arbitrage.
67. The following information is given by your banker
Spot Rs./ US $ : 47.80/82
Rs./£ : 77.45/47
Forward 6 months Rs./ US $ : 48.53/55
Rs./£ : 78.07/09
6 months $ interest rates 2.40%/2.60% p.a.
You are required to determine the 6 months £ interest rates which would prevent arbitrage.
68. Overseas Marine Products Ltd. an exporter of seafoods in Mumbai has submitted a 60 days
bill for Euro 200,000 drawn under an irrevocable LC for negotiation. The company asked
its banker to retain 50% of the bill amount under EEFC (Exchange Earners Foreign
Currency) account.
The rates for US dollars in the interbank market are quoted as under:
Rs./US $ Spot : 47.80/81
1 month forward : 10/11 paise
2 months forward : 21/22 paise
3 months forward : 32/33 paise
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