International Financial Management: Exam Questions

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Examination Paper IIBM Institute of Business Management Examination Paper International Financial Management Section A: Objective Type (30 marks) • This section consists of Multiple choice & Short Answer type questions. • Answer all the questions. • Part One questions carry 1 mark each & Part Two questions carry 5 marks each. Part One: Multiple choices: 1. Maintenance margin money denotes the minimum level to which the margin is allowed to fall in the sequel of loss, if the balance drops below this, one has to deposit, a. Initial margin amount b. Variation margin amount c. Maintenance margin amount d. Initial as well as variation margin amount. 2. The two kind of swap in the forward market are a. Forward swap and reverse swap. b. Reverse swap and option swap. c. Forward and option less swap. d. Forward swap and option swap. 3. International Fisher Effect or generalized version of the Fisher effect is a combination of a. PPP theory and Fisher’s open proposition. b. Fisher’s open and closed proposition. c. PPP theory and Fisher’s closed proposition. d. None of the above. 4. Exchange rates are quoted as ‘direct’ and ‘indirect’ ,if the direct quote of a country ‘X’ (currency unit ‘a’) with country ‘Y’ (currency unit ‘b’), is “ a 50/ b 20” then the indirect quote will be a. b 2.5/ a 1 b. b 0.4/ a 1 c. b 10/ a 1 d. Can not be calculated. 5. If the investors are risk neutral ie forward prices are equal to the expected spot prices at delivery then the covariance of marginal rate of substitution and the exchange rate of contract at delivery is a. Always unity b. Zero c. Infinite d. Between Zero and unity 1 IIBM Institute of Business Management MM.100

Examination Paper

6. In cylinder or tunnel option, the correct option is a. If the spot rate is lower than the lower strike rate then buyer has to pay lower spot rate. b. If the spot rate is lower than the lower strike rate then buyer has to pay lower strike rate. c. If the spot rate is higher than the higher strike rate then buyer has to pay lower strike rate. d. If the spot rate is higher than the higher strike rate then buyer has to pay higher strike rate. 7. The concept of parallel loan says a. Amount of the loan moves out of the county but it serves the purpose of internal loan also. b. Amount of the loan moves out of the county but it serves the purpose of cross border loan. c. Amount of the loan moves within the county and it serves the purpose of external loan only. d. Amount of the loan moves within the county but it serves the purpose of cross border loan. 8. According to one of the earliest theory proposed by Hymer on the imperfect market a. Multinational firm is a typical imperfect market. b. Multinational firm is a perfect market c. One should not look for control if want the maximum profit d. None 9. If the NVP(net present value) from parent’s perspective and from the subsidiary’s perspective are positive and negative respectively then a. Project can not be accepted b. Project shall be accepted c. Project may be accepted but it is doubtful how far useful for parent unit. d. Project may be accepted but chance of loss in host country currency will be there. 10. If ‘A’ and ‘B’ are the price elasticity of demand for import and export respectively then devaluation helps to improve current account balance, only if a. 2A + B is greater than 1. b. A - B is equal to 0. c. A+B is greater than 1. d. A + B is lesser than 0. Part Two: 1. Write a note on ‘Fixed Parity System’ for exchange rates. 2. What are Direct & Indirect Quotes of exchange rates? 3. What is ‘Forward Market Hedging’? 4. How could ‘Optimization of Portfolio’ be achieved?

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Examination Paper END OF SECTION A

Section B: Caselets (40 marks) • • • • This section consists of Caselets. Answer all the questions. Each caselet carries 20 marks. Detailed information should form the part of your answer (Word limit200 to 250 words).

Caselet 1 MANAGING EXCHANGE RATE RISK...
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