Acharya Nagarjuna University (ANU) 2006 M.B.A Business Administration - II - INTERNATIONAL FINANCIAL MANAGEMENT - Question Paper

M.B.A.(Third) DEGREE EXAMINATION, MAY 2006
(D-INTERNATIONAL MANAGEMENT )
PAPER - II - INTERNATIONAL FINANCIAL MANAGEMENT

Time: 3 hours Maximum: 75 marks

PART A - (3 X five = 15 marks)
ans any 3 ques.

1. (a) ADRs
(b) Compensatory financing facility
(c) Cross-hedging
(d) Currency diversification
(e) Floating - rate notes
(f) Non-deliverable forward contracts.

PART B - (3 X 15 = 45 marks)
ans any 3 ques.

2. define typical reasons that MNCs expand internationally.

3. How can government restrictions affect international payments among countries?

4. explain a few reasons for the popularity of the Eurobond market.

5. Why would an MNC consider examining only its .net. cash flows in every currency when assessing its transaction exposure?.

6. Is international working capital management more complex than the domestic working capital management?

7. The treasurer of an insurance company expects to have a surplus of £ five million 6-months from now. She has decided to park the funds in a 3-months euro sterling deposit. The current 3-months deposit rate is 9%. A 6/9 £5 million FRA is being quoted at 8.75/9%. The treasurer sells an FRA to protect herself from falling rates. calculate an effective rate of return on her investment if on day 182.

(a) The 3-months deposit rate is 9.5%
(b) The rate is 8%.

PART C - (1 X 15 = 15 marks)
(Compulsory)

8. A US multinational is planning to set up a subsidiary in India. The initial project cost is estimated to be US $10 billion. The working capital requirement would be Rs.2 billion. The project is to generate a cash inflow of Rs.7 billion/year in 1st three years and then a growth of five percent per year is expected up to the eighth year. Thereafter, there will be a decline of seven percent in growth per year and the project will be closed down at the end of 12 years.

Consider a discount factor of 12 percent and depreciation of rupee against dollar at the rate of one percent per year. Is this project worth while? Tax rate in India is 35%. Study the project from the point of view of both the US multinational and the Indian subsidiary. The current exchange rate is Rs.35/US $.

Earning:   Approval pending.