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

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11.
ans : (b)

Reason: Repayment of Euro 1 million with interest = 1

Investment of Euro 1 million in Rupees = one ´ 51

6 months forward rate = = Rs.51.75

Hence for FII, the forward rate should be less than Rs.51.75 per Euro to provide a positive spread.
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12.
ans : (e)

Reason: Higher than expected economic growth, unexpected central bank tigheting, stronger than expected consumer confidence, stronger than expecetd trade surplus will not necessarily lead to a rise in the domestic exchaneg rate.
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13.
ans : (e)

cause : The IRP depends on relative free flow of capital ranging from countries.
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14.
ans : (b)

cause : According to fisher Effect the interest rate in Singapore can be expected to be

=

I UK = Inflation in U.K.

ISingapore = Inflation in Singapore

r UK = Interest in U.K.

r Singapore = Interest rate in Singapore.

or, =



or, r = 3.98%




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15.
ans : (d)

cause : The demand supply approach is also called balance of payments approach.
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16.
ans : (d)

Reason: Board resolution for availing of import loan where ever necessary

Bank lending activities under import financing are mainly concentrated on activities like

§ Import of consumable inputs and channelized items

§ Import of plant and machinery

§ Imports made under short-term credit facility extended by overseas seller.

§ Credit support to imports is usually extended in the form of

§ Opening of import letter of credit

Financing imports in the form of cash credit, loans mostly against import trust receipt, effecting payment in foreign exchange directly to overseas sellers

Issuing deferred payment guarantees favoring overseas seller on behalf of importer who is importing capital goods on long-term credit.

As a general rule, any credit facility extended to an importer is basically appraised like any other domestic credit proposal, to ascertain that the business has scope to generate cash flows that are sufficient to service the debt besides leaving a reasonable profit with the borrowers. In addition to these normal credit appraisal techniques, banks are expected to assess the loan requirement for compliance with trade and exchange regulations that are applicable to the respective import activity. It is in fact incumbent upon everyone concerned with imports to comply with these regulations. In view of this, we shall now explain about opening of import LCs or financing an importer against import trust receipt, etc. and compliance with regulations in detail.

Earning:   Approval pending.