IIMS EXECUTIVE FPM ANSWER SHEETS – Elaborate the Challenges of international finance

IIMS EXECUTIVE FPM ANSWER SHEETS – Elaborate the Challenges of international finance

 

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International Finance

 

Q 1) The rupee fell for the first time in three days, tracking losses in Asia’s stocks and currencies, on concern China’s move to raise bank reserve ratios will cool the region’s economic growth. The currency, which completed four straight months of gains on April 30, retreated as the Bloomberg-JPMorgan Asia Dollar Index slid for a second day and the MSCI Asia-Pacific Index of regional shares dropped for a fourth time in five days. The Sensex fell 1%. The People’s Bank of China on Sunday raised reserve ratios for lenders by half a percentage point with effect from May 10. “The rupee is tracking the weakness in Asian equities after China’s latest monetary tightening,” said Vikas Babu, a currency trader at Andhra Bank in Mumbai. “In spite of the temporary setbacks triggered by negative global news, the outlook for the rupee remains robust, supported by India’s strong economic fundamentals and healthy capital inflows.” The currency declined 0.4% to 44.52 at the close of trade Monday. The currency has advanced 4.5% so far this year, the second-best perform. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.
1) What is the Impact of increase in reserve ration by the Central Bank? (5)
2) Define Non Deliverable Forwards and distinguish between Domestic Forward rate and NDF rates. (5)
3) What is the correlation between Capital Market and Exchange rate? (5)
4) List out factors affecting Foreign Exchange rate of the Currency? (5)

 

Elaborate the Challenges of international finance

Q2) The Reserve Bank of India pumped in USD 3.18 billion in the forex. market to arrest the slide of the rupee in August, when it fell to an all-time low against the dollar. As per the RBI’s monthly bulletin, the central bank bought USD 724 million from the market in August, leading to net sales of USD 2.46 billion.
However, the 1 dollar sales in August were almost half the amount in July, when the central bank pumped in USD 6.026 billion. The Indian currency touched a record’ low of 68.85 against the dollar on August 28, 2013 amid concerns about a widening current account deficit (CAD) and fears of capital outflows when the US Federal Reserve starts tapering its stimulus programme. The central bank and the government took steps that helped the rupee to recover. To stem the rupee’s decline, the RBI had raised funding costs for banks in July. Steps were also taken to reduce gold imports, a key reason for the record CAD in 2012-13, when it touched 4.8 per cent of GDP or USD 88.2 billion. The CAD was USD 21.8 billion, in the April-June quarter of the current fiscal. The government aims to narrow the gap between foreign exchange outflows and inflows A to USD 70 billion this fiscal. The RBI’s bulletin said that in the forward dollar market, outstanding dollar sales rose to USD 9.05 billion in August from USD 4.74 billion in July.
In reference to the case study: (5 Marks Each)
(I) Explain the Concept of Managed float.
(II) Explain CAD (Current, Account Deficit)
(III) As per the case study what are the possible reasons for the decline in value of Rupee.
(IV) Highlight the steps being taken by the RBI to control the depreciation of Rupee.

Elaborate the Challenges of international finance

Q3) The global meltdown of 2008 saw a record withdrawal of USD 13 billion of portfolio investments from the Indian capital markets. The record crude oil price is the first half of the year also contributed to the outflow of foreign currency reserves from the country, which dropped almost USD 60 billion from their peak levels of the previous year. Capital inflows because of mergers and acquisition, joint venture and foreign direct investments’ were reduced to a trickle. The Indian economy, which was struggling with the management of liquidity and inflation. Was suddenly faced with adverse liquidity and is needed to maintain the falling economic growth rate. Although the monetary authorities took several stages to boost consumption by increasing more supply and reducing interest rates, the sector, which suffered the most, was the export sector. The absence of export orders from the developed countries and fall in domestic demands was double blow for this units.
The difficult situation in international market and the drastic fall in equity prices created major problem for the entities who had borrowed internationally through hybrid instruments such as foreign currency convertible bonds. Due to low equity prices the bondholders avoided conversion into equity on maturity. This meant that the borrowing company has to arrange debt for financing the redemptions in a very difficult market.
  1. What are the different forms of foreign currency inflows? (5)
  2. Define foreign portfolio investment. Distinguish between Foreign direct investments and foreign portfolio investments. (5)
  3. What are the characteristics of foreign currency convertible bonds? (5)
  4. What is the relation between foreign currency reserves and money supply? (5)

Elaborate the Challenges of international finance

Q4)
  1. A) What is the scope and importance of international finance. (10)
  2. B) Elaborate the Challenges of international finance. (10)
Q 5)
  1. A) Elaborate on the types of Euro bonds. (10)
  2. B) What are the different types of risk in International Finance? (10)

IIMS EXECUTIVE FPM ANSWER SHEETS – Elaborate the Challenges of international finance

IIMS EXECUTIVE FPM ANSWER SHEETS – Elaborate the Challenges of international finance

Elaborate the Challenges of international finance

 

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