International Finance Question Bank 2013 – Quest Tutorials

INTERNATIONAL FINANCE

Explain the Following Concepts

Chapter 1

(1) Fiat Currency

(2) Foreign Currency

(3) Foreign Exchange

(4) Foreign Exchange Market

(5) Correspondent Bank

(6) Nostro / Vostro / Loro accounts

(7) Balance of Payments

(8) Balance of Trade

Chapter 2

1.  Foreign Exchange Rates

2.  Direct Rates I Quotes

3.  Indirect Rates / Quotes

4.  Cross Currency Rates

5.  Cross Rates

6.  Vehicle Currency

7.  Spread I % spread

8.  Pips / Points

9.  Arbitrage

10. Speculation

11. Trading

12. Settlement / Value date

13. Cash / Value today contract / rate

14. Torn / Value tomorrow contract / rate

15. Spot contract / rate

16. Forward contract / rate

17. Premium and Discount

18. Holgates principle

Chapter 3

(1) Outright forward rates

(2) Annualised Forward Margin

Chapter 4

(1) Mint Parities

(2) Gold Points

(3) Gold convertibility clause

(4) Gold Exchange Standard

(5) Intervention

(1) Depository receipt

(2) Global Depository Receipt

(3) American Depository Receipt

(4) Indian depository Receipt

(5) Depository Bank (6) Custodian bank (7) Book-runners

(8) Cooling-off period

(9) Green-shoe option

(10) Fungibility in DR‟s

(11) DR arbitrage

(12) Unsponsored ADR‟s

(13) Foreign currency Convertible Bonds (FCCB) (14) Foreign Currency Exchangeable Bonds (FCEB)

(15) Hot money

(16) ADS and ADR ratio

(17) Cross listing of shares

(19) Hedge Funds

(1) Authorised Dealers (AD‟s) (2) Authorised money changers (3) Exchange control

(4) Liberalised Exchange Rate Management System

(5) Unified Exchange Rate System

(6) Inter-bank Market

Chapter 9

(1) Transaction Risk faced by corporate entities

(2) Translation Risk

(3) Economic Risk

(4) Transaction Risk faced by banks

(5) Position Risk (6) Daylight limit (7) Stop-loss limit (8) Overnight limit

(9) Overbought / oversold position

(10) Cover transactions (11) Pre-settlement Risk (12) Settlement Risk

(13) Hedging

(14) Derivatives

(15) Option forward contracts

(16) Swap cost

(17) Margin in futures contracts

(18) Basis in Futures contracts

(19) Call /Put options

(20) American and European options

(21) option price

(22) Option Pricing (Intrinsic and Time value)

Chapter 10

(1) Basel Norms

(2) European System of Central Banks

SHORT NOTES Chapter 1

(1) Balance of Payment as representative of Demand-Supply factors for foreign  currencies

(2) Factors affecting demand for and supply of foreign currencies

(3) Factors influencing exchange rates

Chapter 2

(1) Foreign Exchange Market

(2) Vehicle Currency

(3) Arbitrage

(4) Speculation

(5) Trading

(6) Forward Rates

Chapter 3

(1) PPP theory

(2) CIP theory

(3) Covered Interest arbitrage

Chapter 4

(1) Features of Gold Standard

(2) Smithsonian Agreement

(3) Central Bank Intervention

(4) Market Stabilisation Scheme (MSS)

(5) Merits and demerits of Fixed Exchange Rate System

(6)   Merits and demerits of Flexible Exchange Rate System

Chapter 5

(1) Describe the structure of the foreign exchange dealing room

(2) Explain in detail the role of a dealer in the foreign exchange dealing operations

Chapter 6

(1) Explain the method of calculation of LIBOR

(2) Enumerate the features of the euro-currency credit market

(3) List the features of Offshore Financial Centers (OFC‟s)

(4) Explain Offshore Banking

(5) How is the Offshore banking concept being implemented in India

Chapter 7

(1) What are the factors which create the need for foreign capital? (2) Enumerate the features of GDR‟s

(3) Describe the various types of ADR‟s

(4) What are the advantages of GDR‟s to the issuing company and investors?

(5) Explain in detail the features of FCCB‟s

(6) What are the advantages and disadvantages of Foreign Direct Investment (FDI) (7) What are P-Notes? How are they issued?

(8) Explain Indian policy towards FDI

(10)  Examine  the  role  of  Fli‟s,  Sub  Accounts  and  Hedge  Funds  in  the  P-notes  issuance process.

Chapter 8

(1) List the features of the Retail Foreign Exchange market in India

(2) List the features of the Wholesale Foreign Exchange market in India

(3) Management of reserves is a balancing act. What is the role of RBI in this area? (4) Convertibility of a currency is a two-edged sword, why?

(5) Foreign Exchange Dealers Association of India (FEDAI)

Chapter 9

(1) Describe the internal hedging systems used in foreign exchange operations

(2) Foreign Currency Forward Contracts

(3) Foreign Currency Swaps (4) Foreign Currency Futures (5) Foreign Currency Options

(6) How credit risk is eliminated in Futures contracts? (7) What are NDF‟s? What are their features?

Chapter 10

(1) Explain the origin of the ECB and its functions

(2) Explain the Origin of the BIS and its contribution to the subject of Risk Management

DISTINGUISH BETWEEN Chapter 1

(1) Autonomous and Accomodating transactions. (2) Devaluation and Depreciation.

(3) Nostro and Vostro accounts.

Chapter 2

(1) Direct and Indirect rates (2) Arbitrage and Speculation (3) Arbitrage and Trading

(4) Speculation and Trading

(5) Bulls and Bears

(6) Devaluation and Depreciation (7) Depreciation and Appreciation (8) Devaluation and Revaluation (9) Revaluation and Appreciation

Chapter 3

(1) CIP theory and UIP theory.

Chapter 4

(1) FIXED and FLEXIBLE exchange rate systems

(2) Gold Standard and Bretton Woods System

Chapter 5

(1) Merchant transactions and Interbank transactions

Chapter 6

(1) Euro-currency market and Foreign exchange market

(2) Euro-currency Bonds and Credits (Loans) (3) Euro-currency Bonds and Notes

(4) Offshore financial centers and Tax Havens

Chapter 7

(1) GDR‟s and ADR‟s

(2) Level 1, level 2 and Level 3 ADR‟s

(3) FCCB and FCEB (4) FDI and FPI

Chapter 8

(1) Retail and Wholesale segments of Indian Foreign Exchange market

Chapter 9

(1) Risk and Exposure

(2) Forward Contracts and Swaps

(3) Forward Contracts and Futures Contracts (4) Futures Contracts and Option Contracts (5) Domestic Forwards and NDFs

DESCRIPTIVE TOPICS

Chapter 1

(1) The Current Account of the Balance of Payments is the key to establised foreign currency demand/supply equilibrium. Discuss.

(2) Discuss the relationship between the Balance of Trade and Current Account of Balance of

Payments.

Chapter 2

(1) Define Forward Rates. Explain the concept of Premiums and Discounts in the context of

Holgates Principle.

(2) The term „Cash Contract‟ does not refer to currencies in physical cash form. Discuss.

(3) A market is imperfect without the presence of market makers. Explain the importance of

Foreign Exchange traders.

Chapter 3

(1) Discuss the connectivity between exchange rates, interest rates and commodity prices.

(2) The Covered Interest Parity theory forms the basis for decision making for borrowing /

investing on a risk free basis when multi-currency options are possible. Discuss.

Chapter 4

(1) Explain the features of the Gold Standard and how the concept of Gold Points helped to maintain exchange rate stability?

(2) Describe  the  features  of  the  Gold  Standard  and  how  the  Price  Specie  Adjustment mechanism helped to achieve trade equilibrium?

(3) Enumerate the features of the Bretton Woods System and explain the reasons for its failure. (4) What are SDR‟s? Describe their characteristics in detail.

Chapter 5

(1) Describe in detail the characteristics of the International Foreign Exchange market. (2) Describe the operations of a Foreign Exchange Dealing Room.

(3) Who are „Dealers‟? What role do they play in dealing room operations?

Chapter 6

(1) What is the Euro-currency market? What factors have contributed to its growth? (2) Define Euro-currency market. Enumerate its characteristic features.

(3) Define a Bond. Discuss the various types of international bonds.

(4) Trace the origin of Tax Havens and factors contributing to their growth.

(5) Offshore Financial centers represent the globalisation of the Euro-currency concept. Explain how this development took place.

Chapter 7

(1) Explain the mechanism of a GDR issue

(4) Discuss the concept of Participatory notes in the Indian context

Chapter 8

(1) Enumerate the roles of particants ii the Indian Foreign Exchange market

(2) Discuss the issue of Convertibility of INR

Chapter 9

(1) Define Forward Contract. What am the sub-categories of such contracts? Enumerate their fear.

(2) Explain in detail the various internal hedging mechanisms that a corporate entity can use to

hedge foreign exchange risk

(3) Define NDF‟s. What their features? Discuss the implications of the NDF INR market.

Chapter 10

(1) Elaborate on the role of the BIS in the current international financial architecture. (2) Discuss the operational issues pertaining to the ECB as regulator for Euro- zone.