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

· Payment and receipts are to be settled/received at the end of 6 months.

(2 + six = eight marks) < ans >

5. An oil exploration company in Canada proposes to invest its surplus funds of Can$2.5 million for a period of 6 months. The treasury manager has collected the subsequent info from his banker to invest in currencies other than that of home currency to earn more interest on the funds without exposing the investment to exchange risk by covering the amounts in forward market.

Spot
Can$/$
1.1922/25


Euro/£
1.4804/07


$/£
1.7674/77

Six months forward
Can$/$
1.2065/68


Euro/£
1.4721/24


$/£
1.7600/03

6 month interest rates (P.a.)






Can$
8.4% – 8.8%

$
4.0% – 4.8%

Euro
6.0% – 6.8%

£
5.6% – 6.4%


You are needed to determine the currency in which the company should invest to have more returns.

(10 marks) < ans >

6. Laxmi Industries Ltd. is engaged in manufacturing and trading of handicraft products. It exported handicraft worth AUS$ 2,50,000 to Beecorp Ltd. of Australia under a letter of credit and submitted all shipping documents to its banker on July 20, 2005. However, due to unavoidable circumstances bank could negotiate the bill on August 10, 2005 and sent money to Laxmi Industries Ltd. after collecting an exchange margin of 0.15%.

The spot exchange rates in Mumbai and Singapore as on July 20, 2005 and August 10, 2005 are provided below:



July 20, 2005
August 10, 2005

Mumbai
Rs. / Euro
53.68 / 72
54.09 / 14

Singapore
SKr / Euro
9.6308 / 12
9.6438/ 42


SKr / AUS$
5.9939 / 43
6.0005 / 10


You are needed to compute the rupees received by the exporter on August 10, 2005 and loss or gain to the exporter due to delay in negotiation of bill under the L/C.

(8 marks) < ans >



END OF part B



part C : Applied Theory (20 Marks)

This part consists of ques. with serial number seven - 8.

ans all ques..

Marks are indicated against every ques..

Do not spend more than 25 -30 minutes on part C.

7. A plethora of factors affect the level of, and movement in exchange rates, often in a conflicting manner. Though a consistent prediction of the exact level of future exchange rate is impossible, there are different theories which forecast the possible direction of the movement. Portfolio balance approach is 1 of such theories. discuss how Portfolio Balance Approach forecasts the exchange rate movement.

Earning:   Approval pending.