MF0015–INTERNATIONAL FINANCIAL MANAGEMENT

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ASSIGNMENT

DRIVE	SPRING 2019
PROGRAM	MASTER OF BUSINESS ADMINISTRATION- MBA
SUBJECT CODE & NAME	MF0015–INTERNATIONAL FINANCIAL MANAGEMENT
BOOK ID	B1759
CREDITS	4 CREDITS
MARKS	60 MARKS

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.

Q1. The balance of payment statement summarizes the Economic transactions of a country’s residents in relation to the rest of the world.

Explain the major accounts of the Balance of Payment Statement.

Answer: Balance of Payment Statement: Balance Of Payment (BOP) is a statement which records all the monetary transactions made between residents of a country and the rest of the world during any given period. This statement includes all the transactions made by/to individuals, corporates and the government and helps in monitoring the flow of funds to develop the economy. When all the elements are correctly included in the BOP, it should sum up to zero in a perfect scenario. This means the inflows and outflows of funds

Q2. In Forward market, contracts are made to buy and sell currencies for future delivery.

Explain what do you mean by Forward Markets

Answer: Forward Market: A forward market is a contract entered into between a buyer and seller for future delivery of stock or currency or commodity. The buyer in a forward contract gains if the price at which he buys is less than the spot price and he will lose if the price is higher than the spot price.

What is the purpose of forward contract in a

Q3. Explain the various aspects that need to be considered in order to decide the sources of Funds.

Explain any ten aspects that needs consideration while deciding the sources of funds

Answer: Aspects while deciding the sources of funds: The factors that affect the choice of source of finance are discussed below:

(i)                  Cost: There are two types of cost, the cost of obtaining of funds and cost of utilizing the funds. Both these costs should be considered while deciding about the source of funds that will be used by an organization.

(ii)                 Financial Strength: In the choice of source of

Q4.There are various financial instruments that are used by companies in India and abroad in order to hedge the exchange risk.

Explain the tools that are used to hedge different kind of risks

Answer: The tools that are used to hedge different kind of risks:

The different tools for hedging against foreign exchange risk usually involve contracts for exchanging currency at a fixed rate at some point in the future.

(i)                  Forward Contracts: Forward contracts, or forwards, specify an amount, exchange rate and date for a currency exchange between two parties. Forwards allow parties to close deals and plan at current rates. They have practically no cost; however, there is always the risk of one party failing to

Q5. Corporate financial decisions include exchange rate forecasts as one of the most important inputs.

Explain the Various approaches to Forecasting.

Answer: Various approaches to Forecasting:

1.Purchasing Power Parity: Purchasing power parity (PPP) is a commonly-used method based on the theory of the Law of One Price. This law states that identical goods should have identical prices, regardless of country. A Coke in Thailand should cost the same as a Coke in the US (after accounting for exchange rates and shipping).

PPP also accounts for inflation from country

Q6. A depository receipt is a financial instrument whereby investors in one country can buy, hold or sell the securities issued by companies in another country.

a)     ADR (American Depository Receipt)

Answer:  ADR (American Depository Receipt):  An American depositary receipt (ADR) is a negotiable certificate issued by a U.S. depository bank representing a specified number of shares—or as little as one share—investment in a foreign company's stock. The ADR trades on markets in the U.S. as any stock would trade. ADRs represent a feasible, liquid way for U.S. investors to purchase stock in companies abroad. Foreign firms also benefit from ADRs, as they make it easier to attract American investors and capital—without the hassle and expense of listing themselves on U.S. stock exchanges. The certificates also provide

b)    GDR (Global Depository Receipt)

Answer: GDR (Global Depository Receipt): Global Depository Receipt (GDR) is an instrument in which a company located in domestic country issues one or more of its shares or convertibles bonds outside the domestic country. In GDR, an overseas depository bank i.e. bank outside the domestic territory of a company, issues shares of the company to residents outside the domestic territory. Such shares are in the form of

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