IB0010 & INTERNATIONAL FINANCIAL MANAGEMENT

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ASSIGNMENT

DRIVE	SPRING 2016
PROGRAM	MBADS – (SEM 4/SEM 6) / MBAN2 / MBAFLEX – (SEM 4) / PGDFMN – (SEM 2)
SUBJECT CODE & NAME	IB0010 & 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

Question.1. Explain the difference between International Financial Management and Domestic Financial Management? Discuss the goals of international financial management?

Answer: International finance is different from domestic finance in many aspects and first and the most significant of them is foreign currency exposure. There are other aspects such as the different political, cultural, legal, economical, and taxation environment. International financial management involves a lot of currency derivatives whereas such derivatives are very less used in domestic financial management.

International Finance vs. Domestic Finance

Exposure to Foreign Exchange: The most significant difference is of foreign currency exposure. Currency exposure impacts almost all the areas of

Question.2. Explain the advantages and disadvantages of fixed and floating rates systems? Discuss foreign exchange transactions?

Answer: Fiat currency doesn’t imply a fixed exchange rate. In fact, fiat currencies are compatible with a floating exchange rate regime, in which the value of a currency is determined in foreign exchange markets.

Floating exchange rates have these main advantages:

·       No need for international management of exchange rates: Unlike fixed exchange rates based on a metallic standard, floating exchange rates don’t require an international manager such

Question.3. Explain the concept of Swap. Write down its features and various types of interest rate swap.

Answer: A swap is a derivative contract through which two parties exchange financial instruments. These instruments can be almost anything, but most swaps involve cash flows based on a notional principal amount that both parties agree to. Usually, the principal does not change hands. Each cash flow comprises one leg of the swap. One cash flow is generally fixed, while the other is variable, that is, based on aa benchmark interest rate, floating currency exchange rate or index price.

The most common kind of swap is an interest rate swap. Swaps do not trade on exchanges, and retail investors do not generally engage in swaps. Rather, swaps are over-the-counter contracts between businesses or financial institutions.

In an interest rate swap,

Question.4. Elaborate on meaning of foreign exchange exposure. Explain the types of foreign exposure.

Meaning of foreign exchange exposure

Explain the types of foreign exposure

Answer: Foreign exchange exposure is classified into three types viz. Transaction, Translation and Economic Exposure. Transaction exposure deals with actual foreign currency transaction. Translation exposure deals with the accounting representation and economic exposure deals with little macro level exposure which may be true for the whole industry rather than just the firm under concern.

Foreign exchange exposure

Question.5. Write short notes on:

International Credit Markets

Answer: The credit market is a broad market for companies looking to raise funds through debt issuance. The credit market encompasses both investment-grade bonds and junk bonds, as well as short-term commercial paper.

The market for debt offerings as seen by investors of bonds, notes and securitized obligations such as mortgage pools and collateralized debt obligations (CDOs).

The credit markets

International Bond Markets

Answer: An international bond is a debt investment that is issued in a country by a non-domestic entity. International bonds are issued in countries outside of the United States, in their native country's currency. They pay interest at specific intervals, and pay the principal amount back to the bond's buyer at maturity.

Question.6. Country risk is the risk of investing in a country, where a change in the business environment adversely affects the profit or the value of the assets in a specific country. Explain the country risk factors and assessment of risk factors.

Answer: Country risk refers to the risk of investing or lending in a country, arising from possible changes in the business environment that may adversely affect operating profits or the value of assets in the country. For example, financial factors such as currency controls, devaluation or regulatory changes, or stability factors such as mass riots, civil war and other potential events contribute to companies' operational risks. This term is also sometimes referred to as political risk; however, country risk is a more general term that generally refers only to risks affecting all companies operating within or involved with a particular country.

Important Steps When Investing Overseas

Once country analysis has been completed, several investment decisions need to be made. The first choice is to decide where to invest, by choosing among several possible investment approaches, including:

·         Investing in a

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