SUBJECT :FOREIGN EXCHANGE MANAGEMENT

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SUBJECT :FOREIGN EXCHANGE MANAGEMENT

(Answer Any 8)

Question.1. Explain the types of Credit Risk?

Answer:A credit risk is the risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased collection costs. The loss may be complete or partial and can arise in a number of circumstances, for example:

·         A consumer may fail to make a payment due on a mortgage loan, credit card, line of credit, or other loan.

Question.2. Why E-Banking Systems prove attractive to money launderers?

Answer:Money laundering is the process of transforming the proceeds of crime, corruption or kleptomania into ostensibly legitimate money or other assets. However, in a number of legal and regulatory systems, the term money laundering has become conflated with other forms of financial crime, and sometimes used more generally to include misuse of the financial system (involving things such as securities, digital currencies, credit cards, and traditional currency), including terrorism financing and evasion of international

Question.3. Explain the term an audit?

Answer:Auditing refers to a systematic and independent examination of books, accounts, documents and vouchers of an organization to ascertain how far the financial statements present a true and fair view of the concern. It also attempts to ensure that the books of accounts are properly maintained by the concern as required by law. Auditing has become such a ubiquitous phenomenon in the corporate and the public sector that academics started identifying an "Audit Society". The auditor perceives and recognizes the propositions before him/her for examination, obtains evidence, evaluates the same and formulates an opinion on th

Question.4. Define the term Call option?

Answer:A call option, often simply labeled a "call", is a financial contract between two parties, the buyer and the seller of this type of option. The buyer of the call option has the right, but not the obligation, to buy an agreed quantity of a particular commodity or financial instrument (the underlying) from the seller of the option at a certain time (the expiration date) for a certain price (the strike price). The seller (or "writer") is obligated to sell the commodity or financial instrument to the buyer if the buyer so decides. The buyer pays a fee (called a premium) for this right.

Question.5. Explain the features of Derivatives?

Answer:Derivative can be defined as a contract or an agreement for exchange of payments, whose value is derived from the value of an underlying asset. In simple words the price of derivative depends on the price of other assets.

Derivatives are agreements (contracts) which confer rights and/or obligations based on some underlying interest. The specific rights and obligations encompassed by a derivative contract may be cash settlement, delivery of, or the transfer of rights to, the underlying interest. The underlying interest of a derivative may include physical

Question.6. Define ‘Swap’ in detail?

Answer:A swap is an agreement between two parties to exchange sequences of cash flows for a set period of time. Usually, at the time the contract is initiated, at least one of these series of cash flows is determined by a random or uncertain variable, such as an interest rate, foreign exchange rate, equity price or commodity price. Conceptually, one may view a swap as either a portfolio of forward contracts, or as a long position in one bond

Question.7. What are the factors influencing exchange rate risks?

Answer:Aside from factors such as interest rates and inflation, the exchange rate is one of the most important determinants of a country's relative level of economic health. Exchange rates play a vital role in a country's level of trade, which is critical to most every free market economy in the world. For this reason, exchange rates are among the most watched,analyzed and governmentally manipulated economic measures. But exchange rates matter on a smaller scale as well: they impact the real return of an investor's portfolio.

Question.8. Write short notes (Any two)

a) Stress Testing

Answer:

b) Pat option

Answer:

c) Forward Rate Agreement (FRA)

Answer:

Question.9. Explain the categories of Bank Frauds?

Answer:Bank fraud is the use of potentially illegal means to obtain money, assets, or other property owned or held by a financial institution, or to obtain money from depositors by fraudulently posing as a bank or other financial institution. In many instances, bank fraud is a criminal offence. While the specific elements of particular banking fraud laws vary depending on jurisdictions, the term bank fraud applies to actions that employ a scheme or artifice, as opposed to bank robbery or theft. For this reason, bank fraud is sometimes considered a white-collar crime.

Question.10. Define ‘Treasury Bills or T-Bills’ in details?

Answer:

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