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Master of Business Administration- MBA Semester 4
MF0015 – International Financial Management -4 Credits
(Book ID:B1198)
Assignment (60 marks)
Note: Assignment Set -1 must be written within 6-8 pages. Answer all questions.
Q1.Define Swaps contracts. Write a note on forward swaps. 10 marks(350-400 words)
Answer : Swaps contracts
A contract between two parties in which the parties: (a) promise to make payments to one another on scheduled dates in the future, and (b) use different criteria or formulas to determine their respective payments. Swaps are not guaranteed by any clearinghouse, and, therefore, are susceptible to
Q2.Briefly explain how an MNC can calculate its cost of equity capital. 10 marks(350-400 words)
Answer : Capital Structure of MNCs.
MNCs that are well-diversified across countries would have somewhat stable cashflows and may therefore be able to handle a high level of debt. They may use substantial foreigndebt financing to reduce their subsidiary exposure to exchange rate risk and country risk.
Q3.Compare the Purchasing Power Parity theory and the International Fisher Effect theory.
10 marks(350-400 words)
Answer : Purchasing Power Parity Theory:
Purchasing power parity (PPP) is a theory, which states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries. This means that the exchange rate between two countries should equal the ratio of the two countries’ price level of a fixed basket of goods and services. When a country’s domestic price level is increasing (i.e., a country experiences inflation), that country’s exchange rate must depreciated in
Q4.What is the influence of Government interventions on the exchange rate?
10 marks(350-400 words)
Answer : Government Intervention in the exchange rate
Fixed Exchange Rate
A fixed exchange rate system refers to the case where the exchange rate is set and maintained at same level by the government irrespective of the market forces.
Q5.What are the major components of BOP? 10 marks(350-400 words)
Answer : Shifts in the balance of payments accounts are always topical because they reflect the country’s international trading performance and affect the foreign exchange markets. The balance of payments data also affect the perception of our economy on the international scene.
Q6.What are the benefits of ADRs?
Answer : American Depositary Receipts, or ADRs, are one of the most important items in an international investor’s tool kit. To see why, let’s consider the following example.
Say you’re interested in investing in France. One option is to open a brokerage account in Paris, wire some money over there, convert your dollars into Euros, and then go shopping for French stocks. To say the least, this
(a) To the investors
Answer : Benefits of ADR Investing
Some benefits of ADR investing are clear. First, many international markets, especially emerging markets, have higher GDP growth rates than the United States or Europe. While the American stocks in your portfolio may be stagnating, holding a few ADRs has the potential to provide you with
(b) To the issuing company 5 + 5 = 10 Marks (200 – 250 words each)
Answer : ADRs issuers are typically large multinational corporations. Any non-US company seeking to raise capital in the US or increase their base of US investor can issue ADRs.
What types of companies issue ADRs?
ADRs issuers are typically
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