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CASE STUDY – 1
Political Corruption in India
Government has been jolted by controversy over licences and radio airwaves that the CAG of India) says were given out too cheaply, depriving the government of up to $39 billion in revenues. The telecom minister, A Raja was forced to resign and the Prime Minister Dr Manmohan Singh has been asked to explain himself to the Supreme Court. Opposition parties want a full parliamentary probe and have blocked proceedings until the government relents.
So, what is the controversy all about and what does it mean for the telecom sector and companies?
In 2008, the country issued 122 new telecom licences and the second-generation radio spectrum bundled with it to several domestic companies that had little or no experience in the telecom sector, and at a price set in 2001.
The national Auditor General said that the allocation process did not reflect the correct value of radio spectrum as there was no auction and the entire process was flawed, benefiting selected companies.
The Auditor General said that the telecom ministry did not do the requisite due diligence, granting 85 out of the 122 licences to ineligible applicants.
The auditor also said the ministry did not follow its own guidelines, changed the cut-off date for applications, which gave “unfair advantage” to some companies over others. It said that the entire process “lacked transparency and was undertaken in an arbitrary, unfair and inequitable manner”.
The auditor said that several companies deliberately suppressed facts, disclosed incomplete information, submitted fictitious documents and used fraudulent means to get licences and thereby access to spectrum.
The auditor said that units of Unitech Ltd, which received licences in 2008 and now operates services in a joint venture with Norway’s Telenor, had not fulfilled eligibility conditions including required share capital.
Other firms which were ineligible according to the auditor include Loop Telecom, Videocon Telecommunications and S Tel Ltd. The auditor said that Swan Telecom, which has since been partly acquired by the UAE’s Etisalat , was given licences even though a unit of No. 2 telecoms firm Reliance Communications held over 10% of equity, a violation of rules.
It is still too early to know whether any licences would be cancelled, but the pressure would be strong not to do so because operators have invested in networks and have subscribers.
Any big crackdown could send a wrong signal to investors.
But the government could ask operators to compensate for the potential revenue loss as highlighted by the auditor and may impose fines for not meeting separate rollout obligations.
The Auditor General also named nine other operators, including market leaders Bharti Airtel , Reliance Comm and Vodafone, who were allotted spectrum beyond the contracted limit without paying any upfront charges, costing the government a potential $8 billion.
Questions:
Question 1: How many Telecom licenses were issued and how many were found ineligible?
Question 2: What was the potential loss of revenue to the nation? How did the CAG of India calculate the loss?
Question 3: Explain with examples the various kinds of ‘white collar crime’. How does this case fall under the category of white collar crime?
Question 4: How did these companies violate the principles of Business Ethics and Corporate Social Responsibility?
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IMT- 86
INTERNATIONAL FINANCIAL MANAGEMENT
SECTION – A
1. What kind of finances are available from foreign sources? Explain in detail the role of various institutions providing foreign finance?
2. Exchange rate Type Period Conversion rate
a. CAN $ to USD SPOT Today 1.0401
b. CAN $ to USD FORWARD 3 months 1.0329
c. Six months interest rate
d. USD 9% P.A,
e. CAN$ 6% P.A.
3. Discuss about the following in detail with example.
a. Forward contract
b. Future contract
4. Explain how an Indian company can make investments abroad on fast track.
5. What are the ‘Rule’ requirements for a company to get listed on NASDAQ?
SECTION – B
1. Give the status of forex market in the present era.
2. A US MNC has its subsidiary in India. 10% preference shares of the face value of Rs. 50 have been issued by the subsidiary, to be redeemed at year end 8. Flotation costs are expected to be 4%. These costs can be amortized for tax purpose during the 8 years at a uniform rate. The corporate tax rate is 35%. Determine the cost of preference shares from the perspective of the subsidiary.
3. Why was the fixed rate system was replaced by the floating exchange rate system?
4. Assessing and managing risk is a complex and critical task for international projects. Risks in terms of international projects can be categorized into the following. Discuss.
5. What is the difficulty in extending the domestic CAPM to world environment?
SECTION – C
1. Briefly outline the measure to avoid double taxation.
2. What is country risk? Discuss its elements.
3. Should international firms require higher rates of return on foreign projects than identical projects at home? Comment.
4. What is a foreign exchange market? Explain the functions of a foreign exchange market.
5. One French franc could be purchased in the foreign exchange market for 21 US cents today. If the Franc appreciated 10% tomorrow against the dollar, how many Francs would a dollar buy tomorrow?
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CASE STUDY – 1
1. The current value of the S & P 500 index is $ 1000. The value of portfolio is $5 million. Beta of portfolio is 1.5. One futures contract is for delivery of $ 250 times the index.
a) What position in futures contracts on the S & P 500 is necessary to hedge the portfolio?
b) Use the data for the value of the index and the future price of in the index, both 3 months aheads, to assess the performance of the stock index hedge by recording the gain on the futures position, the return on the market, the expected return on the portfolio, the expected portfolio value in 3 months ( including dividends) and the total expected value of the position in 3 months .
| Scenario | Value for index futures | Price of index |
| 1 | 900 | 902 |
| 2 | 950 | 952 |
| 3 | 1000 | 1003 |
| 4 | 1050 | 1053 |
| 5 | 1100 | 1103 |
The current futures price is $ 1010. The dividends rate on the index is 1% per annum. The risk-free rate is 4% per annum.
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CASE STUDY – 2
Suppose a subsidiary of America currently has an annual sale of $ 50,00,000 with 45 days credit terms. The sales of the subsidiary can be increased by 6% or $ 3,00,000 if the company relaxes its credit period to 120 days. With this extension in sales, the cost of goods sold is $ 1,00,000. Monthly credit expenses of the subsidiary are 1% in financing charges. The dollar is expected to decrease in value on an average of 0.5% every 30 days. If the currency change is not considered then calculate the total financing cost.
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IMT- 87
RISK MANAGEMENT
SECTION – A
Question 1: (a) Explain the principles of risk management. Also explain the limitations of risk management.
(b) Explain the difference between credit risk and the market risk in a financial contract.
(c) Explain why a bank is subject to credit risk when it enters into two offsetting swap contracts.
(d) Describe briefly some strategies for controlling interest rate risk.
(e) What do you understand by Interest rate risk? What are its sources and also explain the broad categories of interest rate risk.
SECTION – B
Question 2: (a) How the options and futures can be used as hedging vehicle? How basis risk replaces the price risk by hedging? Explain.
(b) How is a call option different from Put option? What do you mean by exercising an option?
(c) Critically examine, “buying a call option is risky because the holder commits to purchase a share at a later date.”
(d) What do you mean by options strategies? Explain how different strategies can be used as a risk management tool. Give suitable examples.
(e) What do you mean by Strangle? Is it possible to make profits irrespective of increase or decrease in prices of an underlying asset?
SECTION – C
Question 3: (a) What are different type of currency Derivatives? What are its uses under foreign exchange risk management?
(b) What do you mean by Foreign Exchange risk and what are the tools to manage foreign exchange risk?
(c) What do you mean by Hedge Ratio?
(d) Explain how a total return swap can be used as a financing tool?
(e) Explain: Liquidity risk
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CASE STUDY – 1
An investor can use different Option strategies for Risk management. Given below are some of the strategies being contemplated by a person. You are required to calculate
(i) Risk neutral position
(ii) Maximum pay off and
(iii) Maximum Loss under each strategy:
(a) Mr. XYZ is bullish about ABC Ltd stock. He buys ABC Ltd. at current market price of Rs. 4800 on 4th July. To protect against fall in the price of ABC Ltd. , he buys an ABC Ltd. put option with a strike price Rs. 4500 (OTM) at a premium of Rs. 100 expiring on 31st July.
(b) Mr. XYZ is bearish on Nifty; When the Nifty is at 4894. He buys a put option with a strike price of Rs. 4700 at a premium of Rs. 50, expiring on 31st August.
(c) Mr. XYZ is bullish on Nifty when it is at 4180. He sells a put option with a strike price of Rs. 4400 at a premium of Rs. 120 expiring on 31st July.
(d) Nifty is at 4850 on 27th April. An investor, Mr. A enters a long straddle by buying a May Rs. 4900 Nifty put for Rs. 85 and a May Rs. 4900 Nifty call for Rs. 122.
(e) Suppose Nifty is at 4500 in May. An investor, Mr. A, executes a short strangle by selling a Rs. 4300 Nifty put for a premium of Rs. 23 and a Rs. 4700 Nifty call for Rs. 43.
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CASE STUDY – 2
X Ltd Canada and Y Ltd of U.S. have approached a swap dealer to arrange a currency swap for them. Interest rate in U.S. and Canada for fixed rate borrowing and floating rate borrowing are:
| US$ | CANADA $ | |
| X Ltd. | LIBOR +1% | 6% |
| Y Ltd. | LIBOR +1.5% | 7.5% |
X Ltd wants to borrow US $ at floating Rate while Y Ltd wants to borrow Canada $ at fixed rate. A Swap dealer has agreed to arrange a swap for them for a consideration of .5% spread. Design a swap in which both the companies i.e. X Ltd and Y Ltd. are equally benefited. Also show the related cash flow position of the transaction.
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IMT-136
FINANCIAL MARKETS INSTITUTIONS AND SERVICES
SECTION – A
1. Explain the process of capital formation.
2. Give detailed chart depicting Organization of the Financial System in India.
3. Give differences and similarities between New Issue Market and Stock Exchanges in tabular format.
4. Give detailed chart depicting Money Market Organization in India.
5. Distinguish between CP and CD as understood under Indian Money market.
SECTION – B
1. List the ways by new Issues are brought into the market. Explain any one of them in detail.
2. Give detailed chart depicting Regulatory Framework of Securities Market in India.
3. Who or what is SEBI? List 5 of its powers and functions.
4. Write a note on Buyback of securities.
5. Write a note on primary market intermediaries in India.
SECTION – C
1. Write a detailed on Depository System in India. Remember to give relevant figures/diagrams
2. Write a note on Forward Contracts .
3. Who are venture capitalists? What do they do?
4. What are NBFCs? Why are they important for an economy.
5. Write a note on FDI.
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CASE STUDY – 1
1. Sequia Investments Pvt Ltd is an American investment company. It wants to invest $1 Trillion in Indian Economy. Suggest it how should it invest. Give your answer by providing various financial markets, institutions and services it should avail for maximum profit.
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CASE STUDY – 2
2. Ajay has got a new job in which his monthly take home is Rs.75,000/- He wants to invest in Mutual Funds. You are an expert at mutual fund industry. Explain him what are Mutual Funds and how they work and how will it be beneficial to him.
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IMT-142
STRATEGIC FINANCIAL MANAGEMENT
SECTION – A
Question 1: What are the critical factors to be observed while making capital budgeting decisions under capital rationing?
Question 2: The Moon Ltd. is examining two mutually exclusive proposals. The management of the company uses certainty equivalent (CE) approach to evaluate new investment proposals. From the following information pertaining to these projects, advise the company as to which project should be taken up.
| Proposal A | Proposal B | |||
| Year | Cash flow after taxes | CE | Cash flow after taxes | CE |
| 0 | (25000) | 1.0 | (25000) | 1.0 |
| 1 | 15000 | .8 | 9000 | .9 |
| 2 | 15000 | .7 | 18000 | .8 |
| 3 | 15000 | .6 | 12000 | .7 |
| 4 | 15000 | .5 | 16000 | .4 |
Question 3: What is the indifference point and why is it so called? What is its usefulness?
Question 4: The following particulars are available in respect of corporate:
1. Capital employed Rs 500 million
2. Operating profits after taxes for the last three years are :Rs 80 million, Rs 100 million and Rs 90 million.
3. Riskless rate of return 10%
4. Risk premium relevant to business 5 %.
You are required to calculate the value of goodwill, based on the present value of super profit method. Super profits are to be computed on the basis of the average profits of 4 years. It is expected that the firm is likely to earn super profits for the next 5 years only.
Question 5: What synergies exist in:
a) Horizontal mergers
b) Vertical Mergers
c) Conglomerate mergers
SECTION – B
Question 1: A machine purchased four years ago has been depreciated to its current book value of Rs 50,000. The machine originally had a projected life of 10 years and zero salvage value. A new machine will cost Rs 80,000. Its installation cost estimated by the technician is Rs 20,000. The technician also estimates that the installation of the new machine will result in a reduced operating cost of Rs 30,000 per year for the next 6 years. The old machine would be sold for Rs 20,000. The new machine will have a 6 year life with no salvage value. The company’s income is taxed at 35%. Determine whether existing machine should be replaced, if cost of capital 10%. Depreciation is at straight line basis.
Question 2: What is the sensitivity approach for dealing with the project risk? What is one of the most common methods used to evaluate projects using sensitivity analysis?
Question 3: Distinguish between
· Gross working capital and net working capital.
· Permanent and temporary working capital.
Question 4: Following information is available in respect of a trading firm:
· On an average, debtors are collected after 45 days; inventories have an average holding period of 75 days and creditor’s payment period on an average is 30 days.
· The firm spends a total of Rs 120 lakh annually at a constant rate.
· It can earn 10% on investments.
From the above information compute:
a) Cash cycle and cash turnover.
b) Minimum amount of cash required to meet the payment obligations.
c) Savings by reducing the average inventory holding period by 30 days.
Question 5: What is credit standards? What key variables should be considered in evaluating possible changes in credit standards?
SECTION – C
Question 1: From the following data determine the EOQ
· Annual requirement, 12,00,000 units .
· Purchase Price Rs 3 per unit.
· Ordering cost Rs 50 per order.
· Carrying cost of inventory, 10% of the cost.
Question 2: What are the features of trade credit as a short term source of working capital finance? How can the cost of trade credit be calculated?
Question 3: A call option at a strike price of Rs 170 is selling at a premium of Rs 15. At what share price on maturity will it break even for the buyer of the option? Will the writer of the option also break even at the same price?
Question 4: Explain and illustrate the option pay off.
Question 5: A proforma cost sheet of a company provides the following particulars:
| Amount (Rs.) | |
| Raw material | 80 |
| Direct labour | 30 |
| Overheads | 60 |
| Total cost | 170 |
| Profit | 30 |
| Selling price | 200 |
The following particulars are available:
Raw material in stock, on average one month; material in process, on average half a month; finished goods in stock, on average one month. Credit allowed by suppliers is one month, credit allowed to debtors is two months, lag in payment of wages is one and a half weeks, lag in payment of overhead expenses is one month; one fourth of the output is sold against cash; cash at bank is expected to be Rs 25000. You are required to prepare a statement showing the working capital needed to finance a level of activity of 1,04,000 units of production. Assume that production is carried out during the year evenly.
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CASE STUDY – 1
Bose Engineering has had a very poor bad debt record and, for this reason it has devised the method of credit control based on analyses of its debt experience and of the personal characteristics of its customers. It is ascertained its good and bad debt experiences from a sample of actual orders executed. It ranked its customers using a points system from 0 to 100, where 0 denoted a class of customers with the highest percentage of bad debts and 100 denoted a class with the highest percentage of good debts. These analysis led to the preparation of following tables:
| Point ratings | Cumulative total no. Of orders received | Cumulative no. Of orders received which turn out to be good debts | Cumulative no. Of orders received which turn out to be bad debts |
| 0 – 10 | 1150 | 200 | 950 |
| 0 – 20 | 2100 | 450 | 1650 |
| 0 – 30 | 2850 | 750 | 2100 |
| 0 – 40 | 3950 | 1500 | 2450 |
| 0 – 50 | 6600 | 4000 | 2600 |
| 0 – 60 | 8150 | 5400 | 2750 |
| 0 – 70 | 9100 | 6250 | 2850 |
| 0 – 80 | 9500 | 6600 | 2900 |
| 0 – 90 | 9750 | 6800 | 2950 |
| 0 – 100 | 10000 | 7000 | 3000 |
The table shows, cumulatively, an analysis of the customers by class and an analysis of good & bad debts within each class per 10,000 orders received.
During 2005, the company rejected all orders from customers with a credit rating of 50 and below with the result that a sample profit and loss account, based on the table of 10,000 orders received, appeared as follows:
Sales (3400 orders @ Rs 14/- per order) 47600
Variable Costs:
Purchases 3400 @ Rs 3/- 10200
Distribution 3400 @ Rs 2/- 6800 17000
30600
Overheads:
Administration & Selling Expenses 18200
Bad Debts @ Rs14/- 5600 23800
6800
Assume that administration and selling expenses remaining constant
a) Apply the 2005 prices and costs to the statistical table to show cumulatively for the first five classes of customers the effect on profits of declining to accept orders in each class. Present your answer in columnar form in terms of contributions to overheads and profit lost, costs saved and the total gain or loss.
b) Prepare a sample profit and loss account, similar to that shown and based on 10000 orders received, assuming that all orders from customers with a credit rating of 20 and below are rejected.
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CASE STUDY – 2
A ltd is considering takeover of B Ltd and C Ltd. The financial data for the three companies are as follows:
| Particulars | A Ltd. | B Ltd. | C Ltd. |
| Equity share capital of Rs. 10 each (Rs./million) | 450 | 180 | 90 |
| Earnings (Rs./million) | 90 | 18 | 18 |
| Market price of each shares (Rs.) | 60 | 37 | 46 |
Calculate the:
a. Price-Earnings exchange ratios.
b. Earnings per Share of A Ltd after the acquisition of B Ltd and C Ltd separately.
c. Will you recommend the merger of either/both of the companies? Justify your answer.
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IMT-58 – MANAGEMENT ACCOUNTING
SECTION – A
Q1. Distinguish between Management accounting and Financial Accounting.
Q2. What are the methods by which semi variable cost can be split in its fixed and variable elements?
Q3. Medical aid co. manufactures a special product “AID”. The following particulars were collected for the year
1998:
Monthly demand of AID 1,000 units
Cost of placing an order Rs. 100
Annual carrying cost per unit Rs 15
Normal usage 50 units per week
Minimum usage 25 units per weed
maximum usage 75 units per week
re-order usage 4 to 6 week
Compute from the above :
a. re-order quantity
b. re-order level
c. minimum level
d. maximum level
Q4. What do you understand by JIT?
Q5. Explain the term administrative overheads and briefly discuss three methods of treatment thereof in cost accounts.
SECTION – B
Q1. How does ABC differ from the traditional costing approach?
Q2. What is service costing? Describe the type of industries in which such a system would be suitable.
Q3. Calculate the cost of each process and total cost production from the data given below:
Process x Process Y Process Z
Materials 2,250 750 300
Labour 1,200 3,000 900
Direct Expenses:
Fuel 300 200 400
Carriage 200 300 100
Work overhead 1,890 2,580 1,875
The indirect expenses Rs. 1,275 should be apportioned on the basis of wages.
Q4. What are the advantages of variable costing?
Q5. What do you mean by break-even analysis and explain its uses and applications?
SECTION – C
Q1. Explain advantages and limitations of budgeting.
Q2. What is transfer prices? What are different types of transfer prices?
Q3. Define expense centre. What is the suitability of the measure of performance in an expense centre?
Q4. Differentiate between ‘sunk’ and ‘avoidable’ costs. What is the relevance of such a distinction for short-run decisions?
Q5. The details regarding composition and the weekly wage rate of labour force engaged on a job scheduled to be completed in 30 weeks are as follows:
Standard Actual
Category of No. of Weekly wage No. of Weekly wage
Workers Laborers Rate Laborers Rate
Skilled 75 60 70 70
Semi-skilled 45 40 30 50
Unskilled 60 30 80 20
The work is actually completed in 32 weeks. Calculate the various labour cost variances.
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CASE STUDY – 1
A Ltd. furnishes the following data relating to the year 2008.
1st half of the year 2nd half of the year
Sales (Rs.) 45,000 50,000
Total cost (Rs.) 40,000 43,000
Assuming that there is no change in prices and variable cost and that the fixed expenses are incurred equally in the two half year period, calculate-
1. P/V Ratio
2. Fixed expenses
3. Break even sales
4. Percentage of margin of safety to total sales.
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CASE STUDY – 2
Goodluck Ltd. is currently operating at 75% of its capacity. In the past two years, the level of operations were 5f5% and 65% respectively. Presently, the production is 75,000 units. The company is planning for 85% capacity level during 2013 – 2014. The cost details are as follows:
55% 65% 75%
Rs. Rs. Rs.
Direct Materials 11,00,000 13,00,000 15,00,000
Direct labour 5,50,000 6,50,000 7,50,000
factory overheads 2,00,000 2,00,000 2,00,000
Selling overheads 3,10,000 3,30,000 3,50,000
Administrative overheads 3,20,000 3,60,000 4,00,000
————– ————— —————-
24,40,000 28,00,000 31,60,000
————– ————— —————-
Profit is estimated @ 20% on sales.
The following increases in costs are expected during the year.
In percentage
Direct material 8
Direct labour 5
Variable selling overheads 8
Fixed factory overheads 10
Fixed selling overheads 15
Administrative overheads 10
Required: Prepare flexible budget for the period 20X1 – 20X2 at 85% level of capacity. Also ascertain profit and contribution
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