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

< ans >

9.
Devaluation of a currency means

I. Government lowering the value of the local currency under fixed exchange rate system.

II. Market forces lowering the value of the local currency under fixed exchange rate system.

III. Market forces lowering the value of a local currency under flexible exchange rate system.

(a) Only (I) above (b) Only (II) above

(c) Both (I) and (II) above (d) Both (I) and (III) above

(e) All (I), (II) and (III) above.
< ans >

10.
presume the risk –free interest rate in country A is 3% and in country B is 5%, then

(a) An unhedged investor of country A will earn 5% in A’s currency by investing in country B

(b) An unhedged investor of country A will earn 3% in A’s currency by investing in country B

(c) A hedged investor of country A will earn 5% in A’s currency by investing in country B

(d) A hedged investor of country A will earn 3% in A’s currency by investing in country B

(e) The investor will make a gain of 5% by investing in B’s currency.
< ans >

11.
A Foreign Institutional Investor borrowed Euro one million at 3% p.a. for six months and invested in India at 6% p.a. for six months. The current spot rate is Rs.51 per Euro. In order to get a positive spread the 6 months Rs./Euro forward rate should be

(a) > Rs.51.75 (b) < Rs.51.75

(c) > Rs.51.85 (d) < Rs.51.85 but > Rs.51.75

(e) >Rs. 61.25.
< ans >

12.
The quote is stated to be an ‘European quote’ where the exchange is expressed

I. In terms of US dollars per unit of any other currency.

II. In terms of number of units of any other currency per US dollar.

III. In terms of British pound per US dollar.

IV. In terms of euro per unit of any other currency.

(a) Only (I) above (b) Only (II) above

Earning:   Approval pending.