MS 45 International Financial Management Previous Previous Exam Paper

MBA - Master of Business Administration

Note: Answer any five questions.

1. a) What is the primary goal of multinational companies? Why is stockholder's wealth maximization more relevant than profit maximization?

b) When do volatile exchange rates exist?

2. a) A country's current account balance is equal to its private savings surplus minus its government budget deficit. Assume that a country has a current account surplus of $10000, a government budget deficit of $1500, and private savings of %12000. What isthe country's private investment? Is the country saving more or less than is needed to finance its private investment and budget deficit?

b) Most developing countries have incurred huge balance of payments deficits for mahy years. what alternatives are available to these countries for dealing with their balance of payments problems?

3. a) Discuss some causes of deviations from purchasing power parity.

b) The exchange rate of Japanase yen is $0.0069 per year and a call option has a strike price of $0.0065. An investor has two call options. If the investor excercises the call options, how much profit would be realized?

4. a) What is the basic purpose or economic exposure management?

b) A U.S. company has a single, wholly owned affiliate in Japan. This affiliate has exposed assets of Y500 milllion and exposed liabilities of Y800 million. The exchange rate appreciates from Y150 per dollar to Y100 per dollar.

i) What is the amount of net exposure?
ii) What is the amount of the transaction gain or loss?

5. a) What is the role of a factor in foreign trade? How can a factor aid an exporter?

b) What are bills of lading and how do they facilitate trade financing?

6 a) Explain the theory of comparative advantage as a motive for foreign trade. what is the logica behind this theory?

b) Comment on the flow of foreign direct investment in India since 1991.

7. a) Explain the globalisation of financial markets.

b) Why has the euro-currency market grown so rapidly?