International Finance — DU Bachelor of Business Administration (Financial Investment Analysis) Previous Year Question Papers

International Finance BEA FIA 3. Part of the questions to be attempted together. 4. All questions are of 18 marks each. Q1. Based on given information and theoretical concepts answer the questions at the end: In early 2026, escalating tensions between Iran, Israel, and the United States led to a full-scale geopolitical conflict in West Asia. The disruption of key oil supply routes, particularly the Strait of Hormuz-through which a significant share of global crude oil flows-triggered a sharp rise in global oil prices and financial mark`et volatility. Crude oil prices surged beyond $100 per barrel, increasing inflationary pressures across oil~importing countries like India. At the same time, investors shifted towards safe-haven assets su.ch as the US dollar, leading to capital outflows from emerging markets. India experienced a depreciation of its curreney, with the rupee falling to a one-month low amid rising oil import bills and global uncertainty. Bond yields also increased as inflation expectations rose and monetary tightening risks intensified. Central banks across economies faced a policy dilemma: balancing inflation control with growth concerris. Money and foreign exchange markets reflected heightened volatility, changing interest rate expectations, and shifting capital flows. a. b. c. Explain how geopo,litical conflicts affect exchange rates using appropriate theories (PPP/lRP). Evaluate how capital flows respond to global uncertainty and "risk-off" sentiment. Analyze the transmission mechanism of oil price shocks to inflation and interest rates. Q2a. The present prevailing interest rates and exchange rates are as follows: India: 7%-7.5°/a; USA: 4% -4.25%; Spot: =83/USD; Spot: $1.25/GBP; One-yr Forward: =86/USD; UK: 5% -5.5% Spot: =104/GBP One-yr Forward: =106.24/GBP Identify all arbitrages and compute profit. 6+ 6 = 12 marks 6 marks year hence. Q3a. An Indian importer has three months payable of GBP 120,000. The GBP/lNR spot and forward rates available today in the market are as follows: The prevailing interest rates are as follows: If you are expecting GBP/lNR Spot after 3 months 125.5510/20 then suggest rational strategy to the importers among the following: i. Nohedging ii. Forward hedging iii. Money market hedging 2 + 5+ 5 = 12 marks 6 marks economy. Q4. An Indian exporting firm earns annual revenues of $5 million from the US majket. Its costs are structured as follows: 40% of costs are denominated in USD 60% of costs are denominated in lNR Total operating cost= =250 million a. b. c. d. Calculate the firm's operating profit at the current exchange rate. Calculate the op.erating profit after rupee appreciation. Measure the firm's economic exposure. Suggest the measures to hedge the economic exposure. Q5. Paasho Norway, the Norwegian subsidiary of a U.S. company, Paasho Inc., has the following balance sheet: Assets (NKr thousands) Liabilities (NKr thousands) Cash, marketable securities 7,000 Accounts payable 14,000