MF0015 - INTERNATIONAL FINANCIAL MANAGEMENT

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ASSIGNMENT

DRIVE	WINTER 2015
PROGRAM	MBADS – (SEM 4/SEM 6) / MBAN2 / MBAFLEX – (SEM 4) / PGDFMN – (SEM 2)
SUBJECT CODE & NAME	MF0015 - INTERNATIONAL FINANCIAL MANAGEMENT
SEMESTER	4
BK ID	B1759
CREDITS	4
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. Discuss the goals of international financial management

Answer:  All businesses aim to maximize their profits, minimize their expenses and maximize their market share. Here is a look at each of these goals.

Maximize Profits A company's most important goal is to make money and keep it. Profit-margin ratios are one way to measure how much money a company squeezes from its total revenue or total sales.

2 The key component of the financial system is the money market that acts as a fulcrum of monetary operations.

Write down the important points under each category mentioned below.

a) Functions performed by money market

Answer : There are two types of financial markets viz., the money market and the capital market. The money market in that part of a financial market which deals in the borrowing and lending of short term loans generally for a period of less than or equal to 365 days. It is a mechanism to clear short term monetary transactions in an economy.

Money market is an important part of the economy. It plays very significant functions. As mentioned above it is basically a market for short term monetary transactions. Thus it has to provide facility for adjusting liquidity to the banks, business corporations, non-banking financial institutions (NBFs) and other financial institutions along with investors.

3 Thousands of years back the concept of bartering between parties was prevalent, when the concept of money had not evolved. Explain  counter trade with examples

Answer :  Trading between nations has been happening since time began. In ancient time nations traded silk, spices, cloth and animals of all kinds. Today nation trade food items, defense equipment, metals, electronics etc. The products might have changed but the basic concept is still the same as the underlining need which brings together two nations in a trade relationship still exists.

One such method of trading between nations is called counter trade. Counter trade is an import / export relationship between nations or large companies in which good and/or services are exchanged for goods and services instead of money. In some cases monetary evaluations are made for accounting purposes.

4 There are different techniques of exposure management. One is the Managing Transaction Exposure and the other one is the managing operating exposure So you have to explain on both Managing Transaction Exposure and Managing Operating Exposure.

Answer : ‘Transaction Exposure’ is a risk which is faced by the organizations which are involved in international trade especially when they enter into the financial obligations. The risk which is faced by the companies is about the changes occurring in the currency exchange rates after they have entered into trade obligations in the international market. Many companies which face such a situation adopt hedging strategy which allows them to get locked in an exchange rate by using forward rates to evade the exposure of companies

5 Every firm is going on concern, whether domestic or MNC. Explain the techniques of capital budgeting and the steps to determine cash flows.

Answer : Capital investments are long-term investments in which the assets involved have useful lives of multiple years. For example, constructing a new production facility and investing in machinery and equipment are capital investments. Capital budgeting is a method of estimating the financial viability of a capital investment over the life of the investment.

A Explanation of techniques of capital budgeting:

There are several capital budgeting analysis methods that can be used to determine the economic feasibility of a capital investment. They include the Payback Period, Discounted Payment Period, Net Present Value, Profitability Index, Internal Rate of Return, and Modified Internal Rate of Return.

·         Net Present Value

The Net Present Value (NPV) method involves discounting a stream of future cash flows back to present value. The cash flows can be either positive (cash received) or negative (cash paid). The present value of the initial investment is its full face value because the investment is made at the beginning of the time period. The ending cash flow includes any monetary sale value or remaining value of the capital asset at the end

6 Write short note on:

A) American Depository Receipts(ADR)

Answer : An American Depository Receipt, or ADR, is a security issued by a U.S. depository bank to domestic buyers as a substitute for direct ownership of stock in foreign companies. An ADR can represent one or more shares, or a fraction of a share, of a non-U.S. company. Individual shares of a foreign corporation represented by an ADR are called American Depositary Shares (ADSs).

B) Portfolio

Answer : The term portfolio refers to any collection of financial assets such as stocks, bonds and cash. Portfolios may be held by individual investors and/or managed by financial professionals, hedge funds, banks and other financial institutions. It is a generally accepted principle that a portfolio is designed according to the investor's risk tolerance, time frame and investment objectives. The dollar amount of each asset may influence the risk/reward ratio of the portfolio and is referred to as the asset allocation of the portfolio.

International portfolios allow investors to further

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