SUBJECT: INTERNATIONAL FINANCIAL MANAGEMENT

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SUBJECT: INTERNATIONAL FINANCIAL MANAGEMENT

Total Marks: 100

1) Attempt all questions

2) All questions carry equal marks. (10 marks)

Question.1. What is exchange rate determination and forecasting?

Answer: There are numerous methods of forecasting exchange rates, likely because none of them have been shown to be superior to any other. This speaks to the difficulty of generating a quality forecast. However, this article will introduce you to four of the most popular methods for forecasting exchange rates.

Purchasing Power Parity (PPP): The purchasing power parity (PPP) is perhaps the most popular method due to its indoctrination in most economic textbooks. The PPP forecasting approach is based off of the theoretical Law of One Price, which

Question.2. Explain financial management in a global context.

Answer:Financial management refers to the efficient and effective management of money (funds) in such a manner as to accomplish the objectives of the organization. It is the specialized function directly associated with the top management. The significance of this function is not seen in the 'Line' but also in the capacity of 'Staff' in overall of a company. It has been defined differently by different experts in the field.

The term typically applies to an organization or company's financial strategy, while personal finance or financial life management refers to an individual's

Question.3. Explain in detail:

Question.a) Accounting implications of international activities

Answer: The IASB-FASB convergence effort involves two kinds of projects. The first type includes short-term projects that are intended to remove many of the numerous individual differences between International Financial Reporting Standards (IFRS, which include International Accounting Standards (IAS) issued by the predecessor body to the IASB) and US GAAP. Examples of current and proposed short-term convergence efforts involve the accounting treatments of nonmonetary exchanges, discontinued operations, income taxes and interim reporting. The second type of convergence project involves longer term joint IASB-FASB projects and co-ordinated projects that are intended to provide major pieces of improved accounting guidance. Examples of the latter include the joint projects on revenue

Question.b) Tax implications of international activities

Answer: Regardless of how the program is ultimately structured, the school faces a number of various international tax matters.  Questions that should be considered are summarized below.

Taxable and Legal Presence

    Does the activity create a “taxable presence” in a foreign country?

A foreign country may reserve the right to tax the income that the school generates in the foreign jurisdiction.  However, the United States has

Question.4. What is forwards, swaps and interest Parity?

Answer: A theory in which the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate. Interest rate parity plays an essential role in foreign exchange markets, connecting interest rates, spot exchange rates and foreign exchange rates.

Calculating Forward Rates: Forward exchange rates for currencies refers to exchange rates at a future point in time, as opposed to spot exchange rates, which refers to current rates. An understanding of forward rates is fundamental to interest rate parity, especially as it pertains to arbitrage. The basic equation for calculating forward rates

Question.5. Explain short-term financial management in a multinational corporation.

Answer: Short-term financial management involves budgeting and making financial plans for periods of one year or less. Some long-term financial obligations such as mortgage payments have to be factored into the equation, but short-term financial management typically involves balancing short-term income and expenses. Businesses, governments and individuals have to create short-term financial plans to ensure that obligations to creditors are paid and that sufficient funds are raised to cover other upcoming costs.

Within the business arena, short-term financial management involves managers making departmental budgets that detail short-term costs such

Question.6. Explain long-term borrowing in the global capital markets.

Answer: Capital markets are financial markets for the buying and selling of long-term debt or equity-backed securities. These markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments. Capital markets are defined as markets in which money is provided for periods longer than a year. Financial regulators, such as the UK's Bank of England (BoE) or the U.S. Securities and Exchange Commission (SEC), oversee the capital markets in their jurisdictions to protect investors against fraud, among other duties.

Question.7. What are different currency options?

Answer: A contract that grants the holder the right, but not the obligation, to buy or sell currency at a specified exchange rate during a specified period of time. For this right, a premium is paid to the broker, which will vary depending on the number of contracts purchased. Currency options are one of the best ways for corporations or individuals to hedge against adverse movements in exchange rates.

Investors can hedge against foreign currency risk by purchasing a currency option put or call. For example, assume that an investor believes that

Question.8. Explain currency and interest rate futures.

Answer:In India, the trading in the newly launched derivates or more popularly the interest rate futures began on August 31, 2009 clocking trading volumes of Rs 276 crore in their first day of trade. A dream debut, indeed! But what is this index rate futures all about? Who is eligible and where can you trade them? Read on to find out the answers for these and much more about interest rate futures touted to be the next big thing in Indian derivates.

What is interest rate futures trading?

Question.9. Write a detailed note on the foreign exchange market in India

Answer:The foreign exchange market (forex, FX, or currency market) is a global decentralized market for the trading of currencies. This includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of volume of trading, it is by far the largest market in the world.[1] The main participants in this market are the larger international banks. Financial centres around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the

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