IB0010 – INTERNATIONAL FINANCIAL MANAGEMENT

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ASSIGNMENT

 

 

 

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.

 

 

Q.1 Explain the goals of international financial management. Give complete explanation on Gold Standard 1876-1913. List down the advantages and disadvantages of Gold Standard.

 

Ans : Goals of international financial management :

 

1. Disseminating:

 

Timely dissemination of monthly, quarterly and annual financial information to internal and external stakeholders is a significant goal of financial management. It ensures that financial information is prepared in accordance with accounting principles and International Financial Reporting Standards.

 

2. Planning:

 

 

Q.2 Give an introduction on capital account with its sub-categories. Discuss about capital account convertibility.

 

Ans : Introduction on capital account :

 

In macroeconomics and international finance, the Capital Account (also known as financial account) is one of two primary components of the balance of payments, the other being the current account. Whereas the current account reflects a nation’s net income, the capital account reflects net change in ownership of national assets. A surplus in the capital account means money is flowing into the country, but unlike a surplus in the current account, the inbound flows will effectively represent borrowings or sales of assets rather than payment for work.

 

Sub-categories of capital account :

 

 

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

 

Ans : Introduction of Swap :

 

In finance, a foreign exchange swap, forex swap, or FX swap is a simultaneous purchase and sale of identical amounts of one currency for another with two different value dates (normally spot to forward). Foreign Exchange Swap allows sums of a certain currency to be used to fund charges designated in another currency without acquiring foreign exchange risk.

A foreign exchange swap consists of two legs:

• a spot foreign exchange transaction, and
• a forward foreign exchange transaction.

 

 

Q. 4 Elaborate on measuring exchange rate movements. Explain the factors that influence exchange rates.

 

Ans : Measuring exchange rate movement:

 

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. Here we look at some

 

 

 

 

Q.5 Write short notes on:

a. International Credit Markets

 

Ans : 1. The 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.

 

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

 

 

Q. 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.

 

Ans : Introduction of country risk factors :

 

Country risk refers to the risk of investing in a country, dependent on changes in the business environment that may adversely affect operating profits or the value of assets in a specific 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 a particular country.

 

Two main risk sources need be considered when investing in a foreign country:

 

 

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