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International Banking & Foreign
Exchange Management
June 2023 Examination
Q 1) You are an intern with XYZ Indian
bank. You are supposed to submit a report on different methods used for
managing foreign exchange risk, including currency hedging. Explain the role of
the foreign exchange market and how it operates. (10 Marks)
Answer: Managing foreign
exchange risk is a critical aspect of international business, and there are
various methods that companies can use to manage this risk, including currency
hedging. Here are some of the common methods used for managing foreign exchange
risk:
- Currency Hedging: This
involves using financial instruments such as forward contracts, futures
contracts
Q 2) As per the recent news, global
inflation index is rising. Discuss the impact of interest rates and inflation
on the foreign exchange market. (10
Marks)
Answer: Inflation and
interest rates have a significant impact on the foreign exchange market. The
relationship between the two can be complex and interdependent. The following
are some of the ways in which interest rates and inflation can impact the forex
market:
- Interest Rates and Exchange Rates
Q3) You are a faculty of Foreign
exchange management and your students are discussing an article on exchange
rate systems and their impact on international borrowing.
A. You are supposed to acquaint your
students with fixed exchange rate system and floating exchange rate system. (5
Marks)
Answer: Fixed Exchange
Rate System: Under this system, the exchange rate is fixed by the government or
central bank of a country, and it remains constant against the currency of
another country. The government or central bank intervenes in the foreign
exchange market by buying or selling currencies to maintain the
B. Also elaborate the difference
between a spot transaction and a forward transaction in the foreign exchange
market to your students, for a deeper understanding of exchange rate
transactions. (5 Marks)
Answer: Spot
Transaction: A spot transaction is a type of foreign exchange transaction where
two parties agree to exchange currencies at the current market rate, also known
as the spot rate. The settlement of the transaction usually takes
Dear students, get fully solved
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