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

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10.
ans (d)

Reason: As per IMF manual both imports and exports should be valued at f.o.b. basis. This means that the price paid for the insurance and shipment of goods should not be included as a part of the value of goods either by the importer or the exporter, but should be recorded separately as a payment for services (whenever paid to a foreign agency).
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11.
Answer: (c)

Reason: A country experiencing deflation relative to other countries would see a rise in exports would lead to demand for currency, which would lead to a rise in value of the domestic currency and not a fall. The “reserve account” would remain unchanged in this case for a country that allows it’s currency to float. The supply of domestic currency would fall not rise with increase in demand.
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12.
Answer: (a)

Reason: A current account deficit is not inherently a bad thing. Increase in FDIs off set the current account deficit because these funds (FDI) are used for “building “ which would stimulate economic growth. While international reserves can be used to fund the current account deficit, depleting the reserves can greatly trouble an economy. The IMF only involves itself in times of crisis and is not to be used as a regular means of funding
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13.
ans (c)

Reason: inflows = 100/ 80.33 = 1.2499

Convert into euro = 1.2499/0.6880 = 1.8094

Sell euro in Mumbai to get Rs. 1.8094 ´ 55.32

=100.10

Arbitrage Profit = 100.10-100.00

= 0.10 paise
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14.
ans (a)

Reason: As the forward is in premium and since, the delivery can take place any time during the 2nd month, the bank will quote on the more adverse of the 1 month and 2 month forward rate. Customer will be quoted Rs.44.83 i.e. he will be provided one month premium, assuming that he may come any time after completion of one month.
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15.
Answer: (e)

Reason: Documents means financial documents and commercial documents.

Financial documents means bills of exchange, promissory notes, cheques, or other similar documents used for obtaining the payment of money.

“Commercial documents” means invoices, transport documents, documents of title or other similar documents, or any other documents whatsoever, not being financial documents.
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16.
ans : (e)

cause : Suitable strategies to hedge economic exposure are market selection, pricing strategy, promotional strategy, product strategy, input mix, product sourcing and plant location. Among the provided alternatives, Currency swap is not a suitable strategy to hedge economic exposure, where as the other choices of (a), (b), (c) and (d) are the strategies used to hedge economic exposure

Earning:   Approval pending.