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

3-months forward 26/27

US$ is quoted in the Montreal market as under:

Spot: Can $/US$ 1.1671 /1.1675

1- month forward 19 / 17

2- months forward 28 / 26

3- months forward 36 / 34

Additional information:

(i) Transit period is 15 days

(ii) Interest on post-shipment credit is 8.5%

(iii) Exchange margin needed is 0.1%

You are needed to calculate

a. Exchange rate quoted to the company.

b. The rupee inflow to the company.

(7 + three = 10 marks)
< ans >


END OF part B

part C : Applied Theory (20 Marks)

· This part consists of ques. with serial number six - 7.

· ans all ques..

· Marks are indicated against every ques..

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

6
There are 4 methods to translate the financial statements of a foreign entity into domestic currency. explain those 4 methods.

(10 marks)
< ans >

7
For India to increase its share in the global trade a comprehensive view is needed to be taken for the overall development of the economy. discuss briefly the highlights of the Foreign Trade Policy 2004-2009.

(10 marks)
< ans >


END OF part C



END OF ques. PAPER








Suggested Answers
International Finance and Trade – I (221) : July 2006

part A : Basic Concepts

1.
Answer: (e)

Reason: Country risk refers to the risk of an exporter not receiving his payment from the importer due to a few country specific reasons. These reasons may be political (like war), Social (civil war), or economic(extreme liquidity crunch in the economy). Even when the capacity of the importer to pay is not impaired by any of these reasons, the payment may not come through due to a few currency exchange restrictions suddenly imposed by the importing country.
< TOP >

2.
Answer: (c)

Reason: A transaction which increases external purchasing power of the country is recorded as credit entry. It represents a source of foreign exchange.

Item (c) is inflow of the foreign exchange which is a credit entry whereas all other transactions are out flow of foreign exchange.
< TOP >

3.
Answer: (b)

Earning:   Approval pending.