International Monetary and Financial Environment — DU B.Com. (Hons.) Previous Year Question Papers

1. (a) (b) (c) (d) What is a floating exchange rate? Distinguish between floating and fixed exchange rate system. (9) Distinguish between Balance of Trade and Balance of Payments (BoP). What are the various causes of disequilibrium in the Balance of Payments (BOP) of a country? What do you mean by managed floating exchange rate system? What are the objectives and merits of managed floating exchange rate system in a country like (9) Discuss the role of World Bank Group in regulating and facilitating international financial flows in global monetary system. 2. (a) (b) (c) (d) 3. (a) (b) (c) (d) What are the various features of foreign exchange market? Discuss the role of various participants in the foreign exchange market. (9) How does the absolute version of Purchasing Power Parity (PPP) is different from relative versions of Purchasing Power Parity (PPP) theory of exchange rate determination. Describe it in detail. Discuss the impact of public debt, political stability and economic performance on the exchange rate of a country. (9) Discuss the role of government intervention in stabilizing the exchange rate of a developing country like India. (9) What is a currency forward contract? If a forward market existed already, why is it necessary to establish currency futures and currency options contracts? (9) Consider the following table. The foreign exchange spot rate is given, and you have to calculate the one-month, two-month, and three-month forward rates. Also, calculate the Spread. Currency Pair Spot 1 Month 2 Month 3 Month Euro Vs. Dollar $1.7100/250 50/40 100/85 155/125 What is hedging? List the advantages and disadvantages of hedging to the firm. (9) Determine arbitrage gain from the following data: Spot rate : ₹55/$ 3 – Month forward rate : ₹54.84/$ 3 – Month interest rates : Rupees (₹): 6% and US ($): 8% Assume ₹1000 borrowings to explain your answer. 4. (a) What are foreign currency derivatives? Distinguish between foreign currency futures and options. An Indian exporter has an ongoing order from USA for 2,000 pieces per month at a price of $100 per piece. To execute the order, the exporter has to import Yen 6,000 Yen 120/$. Assuming that the order will be executed after 3 months and payment is obtained immediately on shipment of goods, calculate the loss/gain due to transaction exposure if the exchange rates change to Rs.36/$ and Yen 110/$. (9) How would you define operating exposure to exchange risk? What strategies can be employed to manage operating exposure? On 1st February, a business entity in Mumbai purchases materials from Euro land. The invoice amount of 5,00,000 Euro is payable at the end of April. The Spot rote on 1st February was Rs.49.50 – 50.00 per Euro. The entity incurs a conversion expenditure of Rs.50 lakh. Finished goods were sold to a company in USA on