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

a different market Mr. Praveen considering is the Japanese yen market, due to prevailing low interest rates in Japanese market and ample liquidity it is easy to get a yen denominated loan.

Mr. Praveen and his key staff members have negotiated with a number of banks to explore the possibility of getting loan for the company on favorable terms from the international market. The staff members of Mr. Praveen after a month long negotiations with different international financial institutions has short listed subsequent 3 loan proposals:

Proposal I

$ 44 million Eurodollar loan from a bank in London, interest is payable half-yearly at 6-month LIBOR + 100 basis points. The principal is to be repaid after five years with a bullet payment.

Proposal II

€ 35 million loan from a bank in Zurich, Switzerland. Interest is payable half-yearly at 6-month LIBOR + 250 basis points. The principal is to be repaid after five years with a bullet repayment.

Proposal III

5 year ¥ 5000 million loan from a bank in Japan, interest is payable half-yearly at fixed rate of 3.00% p.a. and the principal is to be repaid in 2 equal annual installments at the end of 48 and 60 months.

Mr. Praveen does not want to bear any foreign exchange risk and intend to hedge all his foreign exchange cash flows in the forward market. He is of the firm opinion that 6-month forward rates for euro, dollar and yen reflect values as per the purchasing power parity and current inflation rate will remain identical for the future periods also. Further, the loan will be availed from July 1st, 2006.

Current Exchange Rates on July 01, 2006

Rs./$
45.48/45.52

Rs./¥
0.4081/0.4091

Rs./€
58.43/58.47




Current Interest Rates on July 01, 2006

6-month LIBOR:
US$
5.5%


€
3.0%


Inflation Rates

India
5.0%

USA
3.5%

Japan
0.5%

Euro-zone
2.0%








END OF part D



part E : Caselets (50 Marks)

· This part consists of ques. with serial number six - 12.

· ans all ques..

· Marks are indicated against every ques..

· Do not spend more than 80 - 90 minutes on part E.

Caselet 1

learn the caselet carefully and ans the subsequent questions:

6. How do you compare continuous linked settlement with CCIL settlement model? Do you think the settlement through CCIL has been able to increase the operational efficiency of the market participants? explain.

Earning:   Approval pending.