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

b. If the $/£ quote in UK market is 1.8590/1.8605, will the dealer be able to make profit? If so quantify the identical for an investment of Rs.1,00,000.

(4 + three = seven marks) < ans >

2. Mr. Alex approaches an authorized dealer in Mumbai for eight months rupee-AED swap. Mr. Alex will buy 1.6 million Arab Emirates Dirham (AED) spot against rupee and sell 1.6 million AED eight months forward against rupee. The forward markets for AED is almost non-existent. The exchange rates and interest rates in the market are as follows:

Rs./AED Spot 12.15

eight months Rupee interest rate (p.a.) 5.0%

eight months AED interest rate (p.a.) 3.5%

You are needed to obtain the swap margin if the bank wants to maintain an exchange margin of 0.5% in the forward leg.

(8 marks) < ans >

3. On September tenth 2005, the Federal Bank entered into a 3-m forward contract for purchase of S$ 10 million. The 3-month forward quotation on the identical day was Rs /S$ 27.45/46. The delivery date for the transaction was December 12th, 2005. On November 14th 2005, the client approached the bank to sell S$ under the original contract on the identical day. The subsequent rates prevailed on that day:

Spot Rs/S$ (Nov 14th, 2005)
27.34/27.39

Forward rate Rs/S$ (Dec 12th, 2005)
27.65/27.70


one month borrowing and deposit rates for the bank are 7.5% p.a. and 4% p.a. respectively.

You are needed to determine the amount to be collected from /paid to the customer due to early delivery.

(10 marks) < ans >

4. Magnum Pension Fund, an offshore investment company floated by a multinational investment banker in Canada has invested in a few opted mutual funds in India for a period of 1 year.

Rs./C$ 1 year ago
Rs.35.4706/10

Rs./C$ now
Rs.39.3712/16

Unit value of investment
Rs.90,000

Cash flow at the end of 6 months
Rs.5,000

Cash flow at the end of 1 year
1,01,100

Reinvestment rate in India
7%

Inflation rate in India
5%

Inflation rate in Canada
3%


You are needed to

a. calculate nominal rate of return to the company.

Earning:   Approval pending.