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

· This part consists of ques. with serial number one – 5.

· 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
On 02.01.2006 M/s Sportsfolio Private Ltd., a Unit in Santacruz Exports Processing Zone, Mumbai, opened an L.C. for USD 100,000 for import of machinery from USA. As per the terms of LC, the last date for shipment is 15.02.2006 and negotiation is 28.02.2006. On 01.02.2006 the Finance Manager of the company booked a forward contract with choice for delivery from 17.02.2006 to 16.03.2006, when the ongoing market rates were:

As on 01.02.2006

Spot Rate Rs./$ 44.08/44.10

Forward 1-Month 03/05

Forward 2-Month 05/08

Forward 3-Month 08/12

The machinery could not be shipped due to non-availability of ship to carry the consignment to Mumbai. The Finance Manager was on leave and no decision was taken for extension of LC as well as extension of forward sale contract. The bank has cancelled the contract on 31.03.2006 as per FEDAI Rules.

The ongoing rates on 31.03.2006 are as follows:

Spot Rate Rs./$ 44.50 / 44.52

Forward 1-Month 04/06

Forward 2-Month 06/09

Forward 3-Month 09/13

Additional information:

(i) Rs./$ Spot TT rates on 16.03.2006 is Rs.44.46/44.48

(ii) Interest rate applicable on outlay of funds is 12% p.a.

You are needed to calculate:

a. The forward rate quoted by the bank on 01.02.2006.

b. The cancellation charges payable by Sportsfolio.

c. The interest amount payable on outlay of funds.

(4 + four + three = 11 marks)
< ans >

2
Indian Remedies Ltd., a leading drug manufacturing company based at Gurgaon is planning to invest in a bulk drug manufacturing unit in Malaysia. After the initial appraisal of the project using the Adjusted current Value (APV) technique, the firm arrives at a negative NPV of Rs.500 million. The Government of Malaysia evince interest to encourage the investment, in the form of arranging a concessional loan of US$ 200 million as the project is expected to create 3,000 jobs directly and indirectly. The principal of concessional loan has to be repaid in 4 equal installments, commencing at the end of 3rd year and interest to be repaid annually. The financial institutions are charging 9% interest for similar kind of loans in Malaysia. The current exchange rate is Rs.44.62/$.

Earning:   Approval pending.