FIN 401 - INTERNATIONAL FINANCIAL MANAGEMENT

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ASSIGNMENT

DRIVE	FALL 2018
PROGRAM	MBA
SEMESTER	4
SUBJECT CODE & NAME	FIN 401 - INTERNATIONAL FINANCIAL MANAGEMENT
BK ID	B1759
CREDITS	2, 4
MARKS	30

Note – The Assignment is divided into 2 sets. You have to answer all questions in both sets. Average score of both assignments scored by you will be considered as your IA score. Kindly note that answers for 10 marks questions should be approximately of 400 words.

SET I

Question.1. Explain Globalization, Advantages of Globalization and Disadvantages of Globalization.

Answer:By the term globalisation we mean opening up of the economy for world market by attaining international competitiveness. Thus the globalisation of the economy simply indicates interaction of the country relating to production, trading and financial transactions with the developed industrialized countries of the world.

Accordingly, the term globalisation has four parameters:

Question.2. In foreign exchange market many types of transactions take place. Discuss the meaning and role of forward, future and options market.

Answer:A derivative is an instrument whose value is derived from the value of one or more basic variables called bases (underlying asset, index, or reference rate) in a contractual manner. The underlying asset can be equity, commodity, forex or any other asset. The major financial derivative products are Forwards, Futures, Options and

Question.3. Explain Swap, its features and types of Swap.

Answer:An interest rate swap is a contractual agreement between two counterparties to exchange cash flows on particular dates in the future. There are two types of legs (or series of cash flows). A fixed rate payer makes a series of fixed payments and at the outset of the swap, these cash flows are known. A floating rate payer makes a series of payments that depend on the future level of interest rates (a quoted index like LIBOR for example) and at the outset of the swap, most or all of these cash flows are not known. In general, a swap

SET II

Question. 1. Explain in detail the types of exposure and measuring economic exposure

Answer:Economic exposure is a type of foreign exchange exposure caused by the effect of unexpected currency fluctuations on a company’s future cash flows, foreign investments and earnings.

Economic exposure, also known as operating exposure, can have a substantial impact on a company’s market value, since it has far-reaching effects and is long-term in nature. Companies can hedge against unexpected currency fluctuations by investing in foreign exchange (FX) markets.

Unlike transaction exposure and translation exposure (the two other types of currency exposure), economic exposure is difficult to measure

Question.2. Elaborate on the tools of foreign exchange risk management and techniques of exposure management.

Answer:Many firms are exposed to foreign exchange risk - i.e. their wealth is affected by movements in exchange rates - and will seek to manage their risk exposure. This page looks at the different types of foreign exchange risk and introduces methods for hedging that risk.

Types of foreign exchange risk

Transaction risk

Question.3. Write short note on:

a. Adjusted present value model (APV model)

Answer:The adjusted present value is the net present value (NPV) of a project or company if financed solely by equity plus the present value (PV) of any financing benefits, which are the additional effects of debt. By taking into account financing benefits, APV includes tax shields such as those provided by deductible interest.

To calculate the adjusted present value is to first calculate the net present value (NPV) of the project or company without debt. Then, the NPV is adjusted to include the benefits of financing. Main benefits of this approach are often tax shields

b. Forced Disinvestment

Answer:Forced Disinvestment or Disinvestment is the action of an organization or government selling or liquidating an asset or subsidiary. Absent the sale of an asset, disinvestment also refers to capital expenditure reductions, which can facilitate the re-allocation of resources to more productive areas within an organization or government-

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