Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance International and Trade - II - Question Paper

ques. Paper
International Finance and Trade - II (222) : April 2006

part D : Case Study (50 Marks)

· This part consists of ques. with serial number one - 4.

· ans all ques..

· Marks are indicated against every ques..

· Do not spend more than 80 - 90 minutes on part D.

Case Study

learn the case carefully and ans the subsequent questions:

1. Evaluate the investment proposal of the Indian pharmaceutical company in Algeria using the Adjusted current Value (APV) technique based on the estimates and projections and advice the CEO whether the project is worth accepting based on simply quantitative parameters.

(20 marks) < ans >

2. What is Purchasing Power Parity (PPP) principle? discuss the various forms of PPP that emerges from the legal regulations of 1 price.

(10 marks) < ans >

3. For an Indian company, the option ranging from the borrowing in home currency or foreign currency would depend on a number of criteria. explain those criteria for choosing a currency of borrowing.

(8 marks) < ans >

4. Countries impose restrictions on the profit or the capital that can be repatriated by a foreign subsidiary to its parent company. explain the different ways by which companies can circumvent restrictions on profit repatriations.

(12 marks) < ans >

Ever since the Asian financial crisis broke up the Government of the developed nations have committed themselves to structural reforms. All the irresistible forces that drive the developing nations eventually triggered up to prove its creditability in the world market. An Indian pharmaceutical company manufacturing pharmaceutical products for the domestic market as well as for exports endeavors his stature which drive them to acquire market share globally. The company has a good market share in the domestic market and also ventured the products to different countries in Canada, Africa and Australia. To increase the market presence in Canada, it is planning to set a manufacturing base in Vancouver. The company presently has a subsidiary that acts as an agent for distribution and marketing of the company’s product in Canada. The management of the company already had a preliminary discussion with the Canadian authorities that are keen on promoting direct foreign investment in the country and have shown willingness to offer a few concessional financing.

The initial investment needed for the project is Can $ 360 million in fixed assets such as plants and machineries and other facilities and Can $ 156 million in working capital margin. The execution of the project if started now could be operational after 1 year. When the project will be operational the distribution and marketing subsidiary can be merged into it to look after the distribution and marketing of the products that will be produced in that manufacturing facility. Capacity utilization of the project after being operational is projected as follows:

Earning:   Approval pending.