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ITM BUSINESS SCHOOL, SIRUSERI CAMPUS,

CHENNAI

PGDM FINANCE, 5th SEMESTER

MULTI NATIONAL FINANCIAL MANAGEMENT

PART A

1. Foreign Exchange in India is controlled by :

a) SEBI.

b) Ministry of Finance, Govt of India.

c) EXIM Bank.

d)Reserve Bank of India.

2. Which of these is not an off shore financial centre?

a) London.

b) Singapore.

c) Tokyo.

d)Shanghai.

3. Which of the following does not belong to the World Bank

Group?

a) IFC.

b) BIS.

c) IBRD.

d)ICC.

4. Which one of the following are long term sources for

financing projects?

a) Euronotes.

b)ECBS.

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c) Letters of Credit.

d) FCNR Deposits.

5. Foreign Exchange transactions in India are regulated by :

a) FEDAI.

b) FIMMDA.

c) FEMA Rules.

d) AMFI.

6. In the interbank foreign exchange market , spot deal

means:

a)Delivery of foreign exchange on the second

working day from the date of contract.

b) Delivery of foreign exchange on the day of

transaction.

c) Delivery of foreign exchange on the next day of

transaction.

d) Delivery of foreign exchange after two working days

from the date of transaction.

7. Which of the following is an exchange rate exposure?

a) Sovereign Risk.

b) Political Risk.

c) Basis Risk.

d)Translation Risk.

8. Which instrument below is not a derivative product?

a) Option.

b) Forward Contract.

c) SWAP.

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d)TT Buying Rate.

9. Which of the following statements is not correct?

a) Currency futures are standardised products.

b)Currency futures do not eliminate counterparty

credit risk.

c) Currency futures offer efficient price discovery.

d) Currency futures provide transparent trading

platform.

10. Which one of the following is not a document under aLetter of Credit?

a) Bill of Exchange.

b) Invoice.

c) Agreement between buyer and seller.

d) Transport Document.

11. Which one of the following is not a party to Letters of

Credit?

a) Applicant ( Opener ).

b) Opening Bank.

c) Beneficiary.

d)Governments of Importer and Exporter.

12. Which one of the following is not an International

financial institution?

a) IMF.

b) ADB Asian Development Bank.

c) African Development Bank.

d)Bank of America.

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13. Which of the following is an off balance sheet item?

a)Options.

b) VAR.

c) ALM.

d) Short Term Credits.

14. Which of these factors have contributed to the

growth of International Banking?

a)Reduction in trade barriers and globalisation of

financial markets.

b) Growth in domestic assets of banks.

c) Automation in banks

d) Stricter regulation by Central banks.

15. Which of the following are not authorised to deal in

foreign exchange?

a) Nationalised Banks.

b) Private Sector Banks.

c) Scheduled Foreign Banks.

d)NBFCs.

16. Which one of the statements is not true for the Bank

for International Settlements?

a) It provides research and statistics.

b) It is a bankers bank.

c) It operates Special Drawing Rights.

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d)It holds current accounts for individuals and

Govts.

17. A good rating is derived :

a)To raise large funds from the market at low

rates of interest.

b) To avoid transfer risk.

c) To avoid market risk.

d) To raise funds in multiple currencies.

18.Which one of the following statements is true?

a)A foreign project is more beneficial when the

foreign currency appreciates over the life of

the project.

b) A foreign project is more beneficial when the foreign

currency depreciates over the life of the project.

c) A foreign project is more beneficial when the foreign

currency remains static over the life of the project.

d) A foreign project is more beneficial when the foreign

currency is devalued.

19. Which of the following statements is not true?

a) FIIs share in domestic market are in Indian rupees.

b)FIIs need not register with SEBI.

c) Shares of FII are held by custodians for an additional

charge.

d) FIIs have to invest in companys shares at par in

domestic market.

20. Among the following, who is not authorised to deal inforeign exchange in India?

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a) Authorised Dealers.

b)Non-Banking Finance companies.

c) Full-fledged Money changers.

d) Restricted Money changes.

State whether TRUE or FALSE:

21.In a forward contract, maturity can be any date. TRUE

22.The maximum length of currency futures is 6 months.

FALSE

23.Balance of payments is a record of the flow of payments

between the residents of one country and the rest of the

world in a given period. TRUE

24.Inflation that is higher than in other countries causes a

countrys currency to appreciate. FALSE

25.There is no profit or loss in a forward contract. TRUE

26.In Euro issue, underwriting is done in advance. FALSE

27.Subscription is invited from Qualified Institutional Buyers

in Euro issue. TRUE

28.Loans granted by International Finance Corporation should

be secured by Govt guarantee. FALSE

29.Derivatives are used for risk management. TRUE

30.Though China has more FDI than India, India could

produce more multinationals than China. TRUE

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PART B :

1. What are the principles of WTO?

2. Write a short note on GATT.

3. Briefly explain the Balance of Payments statement.

4. Briefly discuss three most popular derivative instruments.

5. Why do companies involved in international trade have to

hedge their Foreign Exchange exposure?

6. Distinguish between spot market and forward market.

7. Explain the rationale behind Purchasing Power Parity.

8. What is exchange risk? How can it be managed?

9. What are the important advantages of going

multinational?

10. Discuss the impact of FDI on Indias economy.

11. What do you understand by Euro currency markets?

12. What are Foreign currency convertible Bonds?

13. Why do companies go for External Commercial

Borrowings?

14. What are the factors that determine the exchange

rate?

15. What are the major sources of external internationalfinance for a corporate firm?

PART C:

1. Cognizant Technology Solutions (CTS) wants to borrow Rs.

100 million or the foreign currency equivalent for 6 years

for setting up offices in China. CTS is the second largest

software multinational firm with exports to USA, UK, Japan,

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Europe, etc. The alternatives available with the company

are as follows:

a) Borrow in Indian Rupees: Borrow in Rupees @ 10%

p.a. with bonds sold at par. Expenses of the issue 2%of the amount borrowed.

b) Borrow in US Dollars: Borrow in Dollars at 6.5 % p.a.

with 1.5 % as transaction expenses. The current

exchange rate is $1 = Rs.54.61 (as on Dec 14, 2012).

c) Borrow in Japanese Yen: Borrow in Yen at 5% with 2.5

% as transaction expenses. The current exchange

rate is Japanese Yen (per 100) 65.19 (as on Dec 14,2012) and the yen is expected to appreciate with

respect to rupees by 1 %.

d) Borrow in Euros: Borrow in Euros at 8% p.a. with 3%

as transaction expenses. The current exchange rate

is 1 Euro = Rs.71.52 and the Euro is expected to

appreciate against the dollar by 3% per year.

Evaluate the cost of each alternative and makerecommendation to the CEO regarding the right

source of debt capital that is likely to be least

expensive for the six year period.

2. You are the CFO of Ranbaxy Laboratories and for import ofdrugs have to make a USD 2 million payment in 3 months

time. The dollars are available now .You decide to invest

them for 3 months and you are given the following

information:

a) US Deposit Rate is 7% p.a.

b) Sterling Deposit Rate is 9% p.a.

c) Spot Exchange Rate is $1.85/pound.

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d) 3 months Forward Rate is $1.82/pound.

I. Where should your company invest for better

returns?

II. If the spot exchange rate and interest rates remain

as above, what forward rate would yield an

equilibrium situation?

III. If the US Interest rates and the spot and forward

rates as in the original question, where would you

invest if the sterling deposit rate were 14% p.a.?

IV. With the originally stated spot and forward rates

and the same dollar deposit rate, what is the

equilibrium sterling deposit rate?