Pondicherry University 2007 M.B.A Global Financial kets - Question Paper
M.B.A. DEGREE EXAMINATION, JUNE 2007
4th SEMESTER
Finance
PAPER 17 Global Financial Markets
It is forecasted that the rupee will depreciate in relation it us dollar @ 3 percent per annum, with an initial exchange rate of Rs. 48 per dollar. Accordingly, the exchange rate for the relevant 5 year period of the project will be as follows :
|
Year |
Exchange rate |
|
0 |
Rs. 48 per dollar |
|
1 |
Rs. 49.44 per dollar |
|
2 |
Rs. 50.92 per dollar |
|
3 |
Rs. 52.45 per dollar |
|
4 |
Rs. 54.02 per dollar |
|
5 |
Rs. 55.64 per dollar |
Advice the MNC regarding the financial viability of the proposal.
M.B.A. DEGREE EXAMINATION, JUNE 2007. Fourth Semester Finance
Paper XVII GLOBAL FINANCIAL MARKETS Time : Three hours Maximum : 100 marks
PART A (5x6 = 30 marks)
Answer any FIVE out of the following.
1. What are cross rates? How are they determined?
2. What is spread? Is it affected by the volatility of the currency?
3. What are the major determinants of exchange rates?
4. What is the law of one price?
5. What is transaction exposure? How is it determined?
6. What type of exchange exposure do international companies and multinational companies (MNCs) face?
7. What is fishers effect?
8. Explain an American depository receipts?
PART B (5 x 10 = 50 marks)
Answer any FIVE out of the following.
9. Explain in brief, the interest rate parity theory and purchasing power parity theory.
10. What is an arbitrage process? What function does it serve in the context of foreign exchange market?
11. What is the Major External techniques used in managing foreign exchange risk?
12. What are the important internal techniques that can be used by MNCs to hedge their foreign exchange risk?
13. A foreign capital budgeting project that is profitable from the point of view of a subsidiary is also profitable from the perspective of the plant Explain.
14. Should international firms require higher rates of return on foreign project than an identical project at home? Explain.
15. What is interest rate parity? How does it work?
16. Explain why a corporate finance manager would be unwise to follow a policy of always borrowing that offers the lowest rate of interest.
PART C (1 x 20 = 20 marks)
CASE STUDY - COMPULSORY
17. A US MNC is planning to install a manufacturing unit to produce 5,00,000 units of an automobile component in India. Setting up of the manufacturing plant will in value an investment out lay of Rs. 50 million. The plant is affected to have a useful life of 5 years with 10 million salvage value. MNC will follow the straight line method of depreciation. To support the running of business, working capital of Rs. 5 million, will have to be invested; variable cost of production and sales will be Rs. 20 per unit. Additional fixed costs per annum are estimated to be Rs. 2 million. The forecasting selling price is Rs. 70 per unit. The MNC will be subjected to 40 percent tax rate in India and its required rate of return is 15 percent.
3 MBA 3717
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| Earning: Approval pending. |
