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

Effective cost ( $ 500- 125) $375

choice (c) Loss on account of foregoing 1% cash discount on $85,000 $850

choice (d) Loss on account of offering cash incentive 1% on credit bill $80,000 $800

choice (e) Purchase of export bills of $75,000 by bank @ 1% bank charges $750.
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part B : issues

1.
a. calculation of Forward Rate at which the Forward Sale contract was booked by the bank on 01.02.2006

(Rs./$) Spot Ask Rate 44.10

Ask rate for 17.02.2006 {(44.10) + (0.05 X) = 44.129 ˜44.13

Ask rate for 16.03.06 {(44.15) + (0.08 X) = 44.189 ˜44.19

The rate quoted should be higher of above 2 rates i.e. Rs.44.19/$.

b. Cancellation charges payable by the customer +/- Exchange difference:

Forward Sale contract will be cancelled at the spot TT buying rate of Rs/$ prevailing on 16.03.2006, the last day for taking delivery under the contract.

Bank bought $ under cancellation Rs. 44.46

Bank sold the dollar under original contract Rs. 44.19

Exchange difference payable per dollar by customer Rs. 0.27

Exchange difference for $100,000 payable by customer is Rs.27,000 + Rs.100 towards cancellation charges

c. Interest on outlay of funds:

On 16.03.2006, due to the inability of the customer to take delivery of the currency under contract

the bank was forced to execute the contract by purchasing $100,000 at Rs.44.46/$ from the market, the difference being 0.27 per 1$ and the total amount involved is Rs.27,000 and the interest payable works out as Rs.133.15( @ 12% for 15 days).
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2.
Let the interest rate on concessional loan be “r"



Year
Principal

Outstanding
Repayment
Interest
Total repayment

1
200
--
200r
200r

2.
200

200r
200r

Earning:   Approval pending.