Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance International and Trade – I - university paper

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17.
Answer: (e)

Reason: 30.09.2005 Rupee investment made by the investor US$ two million

@Rs. 43.50 = ( 20,00,000 X 43.50) 8,70,00,000

Rupee value of portfolio after 35% appreciation over value

as on 30.09.05 [ (8,70,00,000) ( 1+0.35) 11,74,50,000

Re-conversion of rupee investment into dollars @Rs.44.75/$

(11,74,50,000 / 44.75 ) $ 26,24,581

Net increase over the original investment is [(26,24,581) - (20,00,000)] $ 6,24,581

Return on investment: 6,24,581 X 100 / 20,00,000 = 31.23%
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18.
Answer: (b)

Reason: Currency board does not have any discretionary powers over the monetary policy. The interest rates are automatically set by the market mechanism. Any increase in domestic interest rate increases the demand for domestic currency which increases the supply of anchor currency. The system offers stable exchange rtes, which act as an incentive for international trade and investment. A currency board does not have power to print unlimited amounts of money due to requirement of domestic currency being backed by reserves of anchor currency. Hence, (b) is wrong
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19.
Answer: (b)

Reason: (Dkr/Euro) bid = (1/US$ / Dkr ) ask X (US$ / €) bid

= one / (€ / US$) ask X (US$ / DKr) bid

= 7.4500

(Dkr/Euro) ask = (1/ US$ Dkr)bid x US$ /€ ask

= 7.4578
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20.
ans : (b)

cause : It is not accurate to say that SDRs are only used to cover current account deficit.
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21.
Answer: (d)

cause : presume we borrow Rs. 100 for one year

We should pay after one year (100) (1+0.065) = Rs.106.50

If we convert Rs. 100 into dollars for investment we find 100/45.20 = $2.2124

If we invest $ 2.2124 for one year @ 5%, the investment would yield (2.2124)(1+0.05)

$ 2.3230 after 1 year

To prevent arbitrage,

Rs.106.50 = $ 2.3230 Fb

Fb = Rs. 45.85/$
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22.
Answer: (d)

Reason: Bulldog bonds are sterling denominated foreign bonds which are raised in the UK domestic securities market. The maturity of these bonds will be either for very short period (5 years) or for very long maturities (25 years and above) These bonds are generally subscribed by long-term insitutiional investors like pension funds and life insurance companies.

Earning:   Approval pending.