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Examination Paper of Finance Management
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IIBM Institute of Business Management
IIBM Institute of Business Management
Examination Paper MM.100
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. Foreign exchange market in India is relatively very:
a. Big
b. Small
c. Medium
d. None of the above
2. Balance of payment is a systematic record of all _______ during a given period of time.
a. Political transactions
b. Social transactions
c. Economic transactions
d. None of the above
3. Merchandise trade balance, services balance & balance on unilateral transfer are the part of
________ account
a. Current account
b. Capital account
c. Official account
d. None of the above
4. Interest rate swaps can be explained as an agreement between _________ parties
a. One
b. Two
c. Three
d. None of the above
5. Capital account convertibility in India evolved in August
a. 1996
b. 1995
c. 1994
d. None of the above
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6. Interest rate parity is an economic concept, expressed as a basic algebraic identity that relates
a. Capital rate & interest rate
b. Interest rate & exchange rate
c. Currency rate & exchange rate
d. None of the above
7. The two kind of swap in the forward market are
a. Forward & reverse swap
b. Reverse swap & option swap
c. Forward & option less swap
d. Forward swap & option swap
8. FEMA stands for
a. Forward exchange market
b. Future exchange market
c. Foreign exchange management act
d. None of the above
9. Exchange rate quotation methods are
a. Direct and direct
b. Indirect and indirect
c. Direct and indirect
d. None of the above
10. 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
Part Two:
1. Write a short note on „Interest Rate Parity System‟ for exchange rates.
2. What are Direct & Indirect Quotes of exchange rates?
3. What is „International Mutual Fund‟?
4. Briefly describe „swaps in foreign exchanges markets‟.
END OF SECTION A
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Section B: Case lets (40 marks)
This section consists of Case lets.
Answer all the questions.
Each Case let carries 20 marks.
Detailed information should form the part of your answer (Word limit 150 to 200 words).
Case let 1
Managing Exchange Rate Risk
Mahindra International (India) imported spares of an engine from a US manufacturer for $ 5,000 per
annum at a price of $ 2.5 per piece. The average exchange rate during 2001-02 was Rs. 47.70/$. The
Indian company imported the spares also from a British manufacturer. In fact, it had diversified its
import in view of reducing the risk associated with the supply. The import from the USA was
competitive in view of the fact the same spares imported from the UK was slightly costlier. The
American spares cost Rs. 119.25 per piece, while the British spares cost Rs. 120.00 per piece. In
2002-03, US dollar appreciated to Rs. 48.40 with the result that the cost of American spares turned
higher than the British spares. In the sequel of the appreciation of US dollar, the Indian importer cut
its demand from 2,000 pieces to 500 pieces. The loss to the US exporter was colossal. But at the same
time, the Indian Importer suffered a lot. It had to pay a higher price for the US spares in terms of
rupee. And also, it had to divert its import from the USA to the UK insofar as the pound sterling did
not appreciate during this period. All this happened in the wake of the exchange rate changes.
Questions:
1. Mention the loss borne by the US exporter in the sequel of appreciation of dollar.
2. What strategy the Indian importer needs to follow to hedge the exchange rate risk?
Case let 2
ABN Amro Bank and Correspondent Banking in India
ABN AMRO bank has emerged as a major correspondent bank owing to a large network. In
India, it operates in six major cities, viz. Baroda, Chennai, Kolkata, Mumbai, New Delhi and
Pune. Being a correspondence bank, its product offerings are found primarily in the area of
trade and clearing. It is doing well in these owing to strong tie-up with local Indian banks
reaching 350 centres across the country. As a result, payments are effected speedily and
effectively.
Cash Management
The customized products in the area of cash management include cheques payable at par at all its
branches across the country, apart from traditional collection services, such as collection of
outstation/upcountry cheques drawn on other banks. ABN AMRO is a member of all major clearing
centers in the major financial centers. It has an electronic delivery system and structures multilateral
netting of cash.
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IIBM Institute of Business Management
Trade Services
Under trade services, the Bank offers a comprehensive range of products, such as:
1. LC reimbursement
2. Indian rupee trade payments
3. Handling documentary bills for collection
4. Bills negotiation
5. Letter of credit advising
6. Letter of credit confirmation
7. Guarantees
Treasury Services
Treasury services at ABN AMRO Bank (India) are available round-the-clock. Rupee funding at its
treasury desk is provided at competitive rates along with advice on market trends and rates. It
provides also advisory services on the request of financial institutions and corporate in the area of
regulatory, economic and financial matters including depository services.
Questions:
1. Describe the network of ABN AMRO Bank in India.
2. What role does it play for global cash management?
END OF SECTION B
Section C: Applied Theory (30 marks)
This section consists of Applied Theory Questions.
Answer all the questions.
Each question carries 15 marks.
Detailed information should form the part of your answer (Word limit 200 to 250 words).
1. Discuss the factors that affect foreign exchange market. Explain the different types of foreign
exchange quotations.
2. What do you mean by balance of payment? What are the key components of balance of
payment
END OF SECTION C
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IIBM Institute of Business Management
Examination Paper MM.100
Security Analysis and Portfolio Management
Section A: Objective Type (30 marks)
This section consists of Multiple choice questions & 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. Beta is useful for comparing the relative _____________ of different stocks.
a. Business risk
b. Systematic risk
c. Liquidity risk
d. Country risk
2. The price prevailing in market is called
a. Market security
b. Market value
c. Market price
d. None of the above
3. Line charts, Bar charts, Candles tic charts are the parts of
a. Fundamental analysis
b. Technical analysis
c. Company analysis
d. None of the above
4. A market portfolio is a portfolio consisting of a weighted __________ in the market.
a. Sum of every equity
b. Sum of every liabilities
c. Sum of every assets
d. None of the above
5. The date on the option contract is called the ___________
a. Expiration date
b. Date of maturity
c. Both a) & b)
d. None of the above
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6. A forward contract is an agreement made today between a ___________ to exchange the
commodity
a. Buyer & buyer
b. Buyer & seller
c. Seller & seller
d. None of the above
7. Portfolio means a collection or combination of financial assets such as
a. Shares
b. Debentures
c. Government securities
d. All of the above
8. CAPM is the abbreviation of
a. Capital Asset Pricing Measure
b. Capital Average Pricing Model
c. Capital Asset Pricing Model
d. None of the above
9. In India the secondary market for shares is regulated by
a. RBI
b. SEBI
c. Company law board
d. There is no regulatory authority
10. The risk of the whole market as measured by „Beta‟ is
a. 1
b. 0
c. -1
d. None of the above
Part Two:
1. What does „β‟ (Beta) mean in risk management?
2. Write a note on „options‟ & „future‟ derivatives.
3. Define Capital market theory.
4. Write a short note on CAPM.
END OF SECTION A
Section B: Case lets (40 marks)
This section consists of Case lets.
Answer all the questions.
Each Case let carries 20 marks.
Detailed information should form the part of your answer (Word limit 150 to 200 words).
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Case let 1
TOUAX is a French company and is currently Europe‟s no. 1 in shipping containers and river
barges, and no. 2 in modular building and freight railcars. The group provides operating leases to
customers around the world, both on its own account and for third-party investors. On June 24, 2009,
TOUAX announced that its capital increased by waiving preferential subscription rights but with
priority for existing shareholders, launched on 18 June 2009 for a total of E17, 851,519.76 (gross)
through the issue of 936,596 new shares which were subscribed in the entirely. Following partial
application of the extension clause, 952,747 shares were placed or 101.72% of the issue; total
proceeds were E18, 159,357.82.
This rights issue has enabled the Group to strengthen its financial structure, to position itself with
advantage for possible acquisitions of tangible stock, and to grasp opportunities thrown up by the
crisis (purchase of shipping containers, modular buildings, river barges and railcars, for hiring out on
mainly long-term leases). 370,062 new shares allotted under absolute entitlement were subscribed or
39.51% of the total number of new shares issue. Another 555,685 shares were applied for subject to
cutting back in the event of over subscription, and orders for these were all filled. Another 27,000
shares had been applied for by the general public, and following partial application of the extension
clause it proved possible to fill orders for all of these.
All the result of the right issue, TOUAX is well placed to respond to the boom in corporate
outsourcing of non-core assets, and every day provides over 5,000 customers with quick and flexible
leasing solutions. TOUAX is now listed on Euronext in Paris – NYSE Euronext Compartment C
(ISIN Code FR0000033003), and features in the SBF 250 Index.
Questions:
1. After analyzing the case, do you think all the companies that can afford, should opt for right
issue to improve their financial status?
2. What do you analyze as the two main advantages of the right issue?
Case let 2
In mid-February 1994, the British paper, the Sunday times ran on article that alleged that a 1 billion
sterling ($ 750 M) sale of equipment by British companies to Malaysia was secured only after bribes had
been paid to Malaysian government officials and after the British overseas development administration
(ODA) had agreed to approve a 234 million sterling grant to the Malaysian government for a
hydroelectric dam of (according to the Sunday times) dubious economic value. The clear implication was
that UK officials, in their enthusiasm to see British companies win a large defence contract, had yield to
pressures from “corrupt” Malaysian officials for bribes – both personal and in the form of the 234 million
sterling development grants.
What happened next took everyone by surprise. The Malaysian government promptly announced a an on
the impact of all British goods and services into Malaysia and demanded an apology from British
Government. Officially the ban applied only to government orders for British goods and services; the
private sector was free to busy as it chose. However, British companies with experience in the region
were nervous that the private sector would follow the government‟s lead in shunning British products. At
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IIBM Institute of Business Management
stake was as much as 4 billion sterling in British exports and construction activities in Malaysia and a
presence in one of the world‟s fastest growing developing economies (Malaysia‟s economic growth has
averaged 8% per annum since 1989). In announcing the ban, Malaysia‟s Prime Minister, Dr Mahathir
Mohammad, noted that the British media portrays Malaysians as corrupt because “ They are not British
and not white”…And “we believe the foreign media must learn the fact that developing countries,
including a country led by brown Moslem, have the ability to manage their own affairs successfully”.
The British government responded by stating, it could not tell the British press what and what not to
publish, to which Dr Mahathir replied there would be “no contracts for British press freedom to tell lies”.
At the same time, the British government came under attack from members of parliament in Britain, who
suspected the government acted unethically and approved the ODA hydroelectric grant to help British
companies win orders in Malaysia.
Questions:
1. If you are the CEO of a British company that now faces the loss of a lucrative contract in
Malaysia because of the dispute. What action should you take?
2. How do you think British government should respond to the Malaysian action?
END OF SECTION B
Section C: Applied Theory (30 marks)
This section consists of Applied Theory Questions.
Answer all the questions.
Each question carries 15 marks.
Detailed information should form the part of your answer (Word limit 200 to 250 words).
1. What do you mean by risk management? Elaborate the various kinds of systematic and nonsystematic
risks.
2. What do you mean by Portfolio management? What are the methods of calculating portfolio
performance evaluation?
END OF SECTION C
S-2-301012
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