‘A000 PG—539 IV Semester M.Com. (Financial Accounting)/M.F.A. Examination, June 2016 (CBCS Scheme) Paper ~ 4.3 : INTERNATIONAL FINANCIAL MANAGEMENT Time : 3 Hours ‘Max. Marks : 70 Instruction : Answer all Sections. SECTION-A Answer any seven sub-questions out often. Each sub-question carries, two marks, (Tx2=14) 1, a) Whatdo you mean by Euro equity ? b) Explain county risk analysis. ©) What is meantby leading and lagging strategy ? 4) What is meant by transter price ? ) Explain economic exposure. f) Whatis meant by netting ? 0) Define Associated Enterprise. h) Define pecking order of financing. 1), What is meant by money market hedge ? |) Whatare blocked funds ? SECTION-B Answer any four questions out of six. Each question carries fivemarks. _ (4x5=20) 2. Youare given that the isk-(ree rate of retum in Indiais 10%, An American investor decides to buy Indian securities with beta = 1.50 and variance of retum = 20%. ‘The Indian rupee has been depreciating at 5% against the dollar with variance of 15%. If the market portfolio fetches a return of 20% in India and correlation between the retum on security and exchange rate is 0.20, estimate the expected return and risk for US investor. 3. Elucidate the various techniques to optimise cash inflows. Pro.PG-539 2 ST 4, Discuss the economic factors that should be consi risk. red when assessing country 5, Explain in brie! the methods of computation of Arm's length price. 6. AGerman subsidiary of an US based MNC has to mobilise working capita for the next 12 montis. It has the following options : Loan from German bank o% Loan from US parent 5% Loan from Swiss bank De Banks in Germany charge an additional 0.5% towards loan servicing. Loan trom ‘outside Germany attract withholding tax at 10% on intorest paid. If the interest. ratos given above are market determined, examine which oan is most attractive, 7. Aforeign project requires $ 40,000, which is raised from equity and debt. § 10,000 is raised by equity and remaining by loan at an interest rate of 12%. Project has. beta of 0.80, the risk free return is 10% and the required return on the marketis estimated at 15%. Calculate overall cost for the project. SECTION-C Answer any three questions out of five. Each question carries twelve marks. (3«12=36) 8 Discuss transaction exposure and enumerate techniques to hedge transaction exposure, 9. A Swiss multinational has subsidies in Switzerland, UK and Singapore. The following cash flows are involved among the subsidiaries and Headquarters. From To ‘Amount Swiss subsidiary | US parent 'SFr320,000 | swiss subsidiary __|UK subsidiary ‘SFr 32,000 UK subisidiary ‘Swiss subsidiary | 27,890 UK subsidiary [US parent £87,878 ‘Singapore subsidiary |Swiss subsidiary [S$ 534000 _ Singapore subsidiary [UK subsidiay __|S$ 164,400 US parent ‘Singapore subsidiary |§ 150,00010. 11. 12, The exchange rates are currently : £1=81.64 $1=8$ 1.68 $1=SFr1.45 Explain how the company can use centralised cash management, Explain important factors that need to be assessed from income tax point of view while entering into foreign collaboration agreement After tax lending and borrowing rates tor three units of ABC Ltd. located in US, France, and Germany are Lending (%) Borrowing (%) United States a4 42 France 32 45 Germany 36 a7 Currently, the French and German units owe $2 milion and $3 milion, respectively to their US parent. The German unit also has $ 1 million in payable outstanding to its French affiliate. The timing of these payments can be changed by up to 90 days in either direction. Assume that ABC Lid. is borrowing funds while both the French and German Subsidiaries have excess cash available. a) What should be ABC Ltd's optimal leading and lagging strategy ? b) Whatis the net profit impact of these adjustments ? Write a short nate on the following a) Intemational project finance ) Multinational Capital Budgeting ©) International financial market and instruments.PG-741 IV Semester M.F.A. Degree Examination, June 2015 (Semester Scheme) FINANCE AND ACCOUNTS Paper - 4.3 : International Financial Management Time : 3 Hours Max, Marks : 80 SECTION-A (10x2=20) Note : Answor any ten ofthe folowing sub-questions in about 3-4 lines each. Each ssub-question carries two marks. 4. a) Identity the components of International financial system. b) Whatis spread ? ©) Define arbitrage. d) What is strike price ? ) Mention the types of country risk assessment. 4) State four important features of Euro currency market. 4) State the major extemal techniques used in managing foreign exchange risk. hh) Define cost of debtn international market. i) What are the goals of Global Financial Systems ? j) Define international fisher effect, k) What is meant by project risk ? |) Stato the participants in foreign exchange market. SECTION-B (8x5=15) Note: Answer any three questions in about one page each. Each question carries, five marks. 2. Write a note on exchange rate system in India. . Write a note on Foreign Currency Bonds. PTO.PG-741 a 4, Briefly explain the management of receivables in multinationals. 5, What are the different methods used to study political risk ? Explain any one of these methods. 6. From the following details, calculate the arbitrage possibilities. + Spotrate % 95.0020=$ ‘+ Gmonths forward rate & 35.9010 =$ + Annualized interest rate on 6 month rupee : 12% * Annualized interest rate on 6 month dollar : 7% SECTION=C (2x15=30) Note : Answer any two questions. Each question carries 15 marks. 7. “Instead of total cash flows, incremental cash flows should be the basis for evaluating foreign capital budgeting projects". Do you agroe ? Why ? 8, Enunciate the Theory of Interest Rate Parity and enumerate the factors that limit is applicability 9. “Economic exposure implies the change in the value of a firm due to unanticipated ‘change in exchange rates’. Examine the statement. 40. Bharath International, an Indian based multinational company, is evaluating an abroad investment proposal. Ithas expanding its activties to such an extent that itis now considering a project to build a plant in USA. Project cost is $ 50 million and itis expected to generate cash flow for four years as follows : Year: ee erie ad Cash flows ($millions): 20-210 Current spot exchange rate is z 60/6. Rsk tree rate in India is 10% and in USA, itis 6%. Bharath International's required rate of return on this project is 20%. From the above information, you are required to evaluate project by using a) Home Currency Approach and ) Foreign Currency Approach.+ PG-741 SECTION-D (te15215) 11. Case Study (compulsory): ‘An Indian company is planning to set up a subsidiary in the USA. The initial project costis estimated to be US dollar 400 milion ; working capital requirements are estimated at US $ 40 milion. The Indian company follows the straight line method of depreciation. The finance manager of the company estimated the following in respect of this project. Variable cost of production and sales $ 25 per unit Fixed costs per annum are estimated at $ 30 million. Plant will be producing and selling 5 milion units at $ 100 per unit and + Expected economic useful ile of the plants five years with no salvage value, “The subsidiary of Indian company is subject to 40% corporate tax in the US and the required rate of return of such a project is 12%. The current exchange rate between the two countriesis € 48/USS and the rupee is expected to depreciate by 3% per annum for next five years. The subsidiary will be allowed to repatriate 70% of the CFAT every year along with the accumulated arrears of blocked funds at year ond 5, the withholding taxes are 10%. The blocked funds will be invested in the USA money market by the subsidiary, earning 4% ree of tax) per year. Determine the feasibility of having a subsidiary company in the USA assuming ro tax iabilty in India on earnings recelved by the parent from the US subsidiary