MS-45: International Financial Management

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ASSIGNMENT

Course Code	MS - 45
Course Title	MS-45: International Financial Management
Assignment Code	MS-45/SEM - II /2014
CREDIT	4
Coverage	All Blocks
MAX.MARKS	60

Note: Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme.

1. What are the special features of the Euro bond market? How do bond markets in general differ from equity markets?

Answer: The Eurobond market is made up of investors, banks, borrowers, and trading agents that buy, sell, and transfer Eurobonds. Eurobonds are a special kind of bond issued by European governments and companies,

Features:

The regulatory issues of any investment market are important and Euro bonds are no different expect for the fact that national governments exercise much stringent limitations on securities denominated in their local currency rather than a foreign currency.

2. Why do foreign exchange rates fluctuates? How do these fluctuations affect us? What can be done to minimize these fluctuations?

Answer: A higher currency makes a country's exports more expensive and imports cheaper in foreign markets; a lower currency makes a country's exports cheaper and its imports more expensive in foreign markets. A higher exchange rate can be expected to lower the country's balance of trade, while a lower exchange rate would increase it.

1. Differentials in Inflation

As a general rule, a country with a consistently lower inflation rate exhibits a rising currency value, as its purchasing power

3. How Does Export Credits Guarantee Corporation assist international trade? Give details of the various policies issued by it.

Answer: The ECGC Limited (ECGC) was established on 30 July 1957 with an objective to provide insurance cover in respect of risks in export trade. These risk may include loss of money on account of foreign buyer becoming bankrupt or sudden import or exchange restrictions resulting in stopping of payments etc..

What does ECGC do:

·         Provides a range of credit risk insurance covers to exporters against loss in export of goods and services.

4. Explain why cost of capital for MNCs is different from that of domestic firms? Discuss how cut of rate for foreign projects determined while appraising the project.

Answer: In accounting, the cost of capital is the cost of a company's funds (both debt and equity), or, from an investor's point of view "the required rate of return on a portfolio company's existing securities". It is used to evaluate new projects of a company.

Substitutability of factors and commodities:

Trade in goods and services can to some extent be considered a substitute for factor movements. In the absence of trade barriers,

5. What does deficit in the Balance of Payment signify? Is the balance of trade more important than balance of payments? Discuss the components of Balance of payments.

Answer: The balance of payments (BOP) is the place where countries record their monetary transactions with the rest of the world. Transactions are either marked as a credit or a debit. Within the BOP there are three separate categories under which different transactions are categorized: the current account, the capital account and the financial account..

The Current Account

The balance of the current account tells us if a country has a deficit or a surplus. If there is a deficit, does that mean the economy is weak

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