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International Finance

1. ABV company, leading manufacturer of women apparels in India, wants to expand its business overseas. Assume that company has no experience in doing business in international markets and how to raise the funds for the same. You work in an investment bank. Suggest different methods of international trade with pros and cons to the company management. Explain the concept and types of different international financial markets.

(Limit the description to maximum one page for international markets (10 Marks)

2. A forex trader from Mumbai collects the below information regarding the exchange rate between INR and GBP

Bid Price: INR / GBP = 96.10
Ask Price: INR / GBP = 96.20

You are required to help him with the below questions he has:

(a) What is the direct exchange rate of INR-GBP for the trader?

(b) What is the indirect exchange rate of INR-GBP for the trader?

(c) What is a cross rate? If the bid and ask rate for EUR-USD are available as GBP 1.2100-1.3100/USD, what would be the bid-ask rates for INR/USD, using the cross rate method. (10 Marks)

3. XYZ ltd. has imported raw material of Euro 14 million from Germany with the credit of 30 days. The finance officer of XYZ ltd. wants to hedge this transaction for foreign exchange risk exposure. The prevailing interest and exchange rates in the markets are:

Spot Rate: Euro 80.49/ INR
Forward Rate: Euro 80.79/ INR
30 day Put Option on INR EURO 0.012/ Euro at 1% premium
30-day Call option on INR EURO 0.024/ Euro at 1 % premium
EURO interest rate: 7%
INR interest rate: 14%

Based on the above data, answer the following questions:

a. Explain different hedging options available to XYZ ltd? (5 Marks)
b. What is the hedged cost of XYZ ltd payable using forward market hedge, put option hedge and money market hedge? (5 Marks)

Nmims 2023 Customized Assignments Contact
[email protected]
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