Multinational Business Finance — DU Bachelor of Management Studies Previous Year Question Papers

4. Use suitable assumptions wherever required. c) Currently, the spot exchange rate is $ 1.50/f and the three-month forward exchange rate is $ 1.52/£. The three month interest rate is 8.0% p.a. in the U.K. Assume that you can borrow as much as $ 1,500,000 or £ 1,000,000. a. Determine whether the interest rate parity is currently holding. b. If the IRP is not holding, how would you carry out covered interest arbitrage? Show all the steps and determine the arbitrage profit. c. Explain how the IRP will be restored as a result of covered arbitrage activities. Q4. The spot rate of USD is 750 and 3-month forward rate is $50.80. Calculate the annualized forward premium. (4 Marks) a) An Indian firm has the following exposures: Exchange rates: i) Convert all exposures into USD ii) Calculate net exposure ili) Find INR value of net position iv) Briefly explain how netting reduces exchange risk (14 marks) Q5. a) Discuss how capital structure decisions differ in multinational firms. (8 Marks) b) Explain the challenges and techniques in foreign investment analysis and capital budgeting. (10 Marks) Q6. Write short notes on any three: (3*6 = 18 marks) Leading and Lagging European Monetary System Fixed vs Flexible exchange rate system. FIls and their impact on stock market volatility.