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Summer 2013
Master of Business Administration- Banking & Finance-Semester 4
MBF 404–International Financial Management – 4 Credits
(Book ID: B1759)
Assignment- 60marks
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.
Q1. Globalization is a process of international integration that arises due to increasing human connectivity as well as the interchange of products, ideas and other aspects of culture. Give brief introduction of globalization and identify its advantages and disadvantages.
Answer : Globalization :
Globalization is the process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture. Put in simple terms, globalization refers to processes that increase world-wide exchanges of national and cultural resources. Advances in transportation and telecommunications infrastructure, including the rise
Q2. Foreign exchange markets, where money in one currency is exchanged for another. Write the history of foreign exchange. Explain the fixed and floating rates and the advantages and disadvantages of fixed rates system.
Answer : History of foreign exchange :
The foreign exchange market as we know it today originated in 1973. However, money has been around in one form or another since the time of Pharaohs. The Babylonians are credited with the first use of paper bills and receipts, but Middle Eastern moneychangers were the first currency traders who exchanged coins from one culture to another. During the middle ages, the need for another form of currency besides coins emerged as the method of choice. These paper bills represented transferable third-party payments of funds, making foreign currency
Q3. Swap is an agreement between two or more parties to exchange sets of cash flows over a period in future. What do you understand by swap? Explain its features, kinds of swap and various types of interest rates swap.
Answer : Meaning 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,
Q4. International credit markets are the forum where companies and governments can obtain credit. Bring out your understanding on international credit markets and explain the two very important aspects of international credit market. Refer and give one example.
Answer : International credit market :
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 obligations (CDOs). The credit markets dwarf the equity markets in terms of dollar value. As such, the current state of the credit markets tells us the relative health of a large portion of the financial community if
Q5. Cost of capital is the minimum rate of return required by a firm on its investment in order to provide the rate of return by its suppliers of capital. Describe the cost of capital across countries.
Answer : Effect of country difference in the cost of debt :
The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; however, because interest expense is deductible, the after-tax cost is seen most often. This is one part of the company’s capital structure, which also includes the cost of equity. A company will use various bonds, loans and other forms of debt, so this measure is useful for giving an idea as to the overall rate being paid by the company to use debt financing. To get the after-tax rate, you simply multiply the before-tax rate by one minus the marginal
Q6. Explain the principles of taxation and double taxation. Give some important points on tax havens and its types.
Answer : Principles of taxation :
(1) Adequacy: taxes should be just-enough to generate revenue required for provision of essential public services.
(2) Broad Basing: taxes should be spread over as wide as possible section of the population, or sectors of economy, to minimize the individual tax burden.
(3) Compatibility: taxes should be coordinated to ensure tax neutrality and overall objectives of good governance.
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