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

b. calculate the real rate of return to the company.

c. calculate the real rate of return to an Indian Investor who invested in the identical mutual fund.

(3 + three + three = nine marks) < ans >

5. Marico Ltd. has imported machines for leather manufacturing worth US$ 2,56,000 from a company in US. The amount due for the imports is payable after six months. Mr. Deshpande, the treasury manager of Marico Ltd. has collected the subsequent market quotes:

Exchange rates:

Spot Rs./$ 46.07/46.11

Forward six month 46.18/46.22

Interest rates (p.a.):

Dollar (6 months) 5.50% / 6.00%

Rupee (6 months) 9.50% / 11.00%

The supplier of the equipment, Camco International, has offered a discount of $ 2,500 if the payable is settled at the current date. Mr. Deshpande is reviewing the subsequent options to settle the payable:

i. Cover through forward market

ii. Cover through money market

iii. Avail the cash discount of $ 2,500 by taking a bridge loan at 13.5% p.a. from a lending institution.

You are needed to suggest Mr. Deshpande the best option to settle the payable.

(7 marks) < ans >

6. Eric Inc. an Export Oriented Unit (EOU) engaged in export of consumer durables in Mumbai has submitted a 90 days bill of S$ 150,000 drawn under an irrevocable LC for negotiation. The company decided to retain a portion of it and solicit its banker to retain 70% of the bill amount under EEFC (Exchange Earners Foreign Currency) account.



The rates for US dollars in the inter-bank market are quoted as under:

Rs./ $
Spot
: 44.54/58


one month forward
: 12/15 paise


two months forward
: 21/24 paise


three months forward
: 26/29 paise


four months forward
: 30/33 paise


Singapore Dollar quoted in Bangkok market as under:

$/S$
Spot
: 0.6061/65


one month forward
: 25/30


two months forward
: 31/36


three months forward
: 37/42


four months forward

Earning:   Approval pending.