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

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

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

29.
Which of the subsequent statements is false?

(a) Offsetting a long position in 1 currency with a short position in the identical currency is known as `netting’

(b) Risk arising from an exposure in 1 currency can be decreased with an exposure in a different currency

(c) A firm can offset a long position in a currency with a short position in the identical currency

(d) If the exchange rate movements of 2 currencies are negatively correlated, then a firm can offset the risk arising from a long position in 1 currency with a short position in other currency

(e) If the currency movements are negatively correlated, then long positions in both the currencies will provide rise to risk that is less than the risk arising from a long position in any 1 currency.
< ans >

30.
The eurodollar interest rates in London are as under:

1 month
3.00% p.a.

2 months
3.60% p.a.

3 months
4.00% p.a.


The 1 month interest rate after two months is expected to be

(a) 4.44% p.a. (b) 4.55% p.a. (c) 4.66% p.a.

(d) 4.77% p.a. (e) 4.88% p.a.
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END OF part A









part B : issues (50 Marks)

· This part consists of ques. with serial number one – 6.

· ans all ques..

· Marks are indicated against every ques..

· Detailed workings should form part of your ans.

· Do not spend more than 110 - 120 minutes on part B.

1. You are a dealer in the treasury department of a bank and obtained the subsequent quotes:

Rs./£ 84.70/85.00

Rs./$ 45.75/45.80

You are needed to

a. obtain the limits for the cross rate for $/£ to prevent 2 point arbitrage.

Earning:   Approval pending.