International Finance- Paper 1
Both sections are compulsory. Solve any 3 questions in section 2
Section 1
- Concepts (3×5=15)
- Read the case and answer the questions below
- BIS
- Petrodollars
- Official settlement concept
- ADR/GDR
- Types of contracts
The Asian financial crisis was a period of financial crisis that gripped much of Asia beginning in July 1997, and raised fears of a worldwide economic meltdown due to financial contagion.
The crisis started in Thailand with the financial collapse of the Thai baht after the Thai government was forced to float the baht (due to lack of foreign currency to support its fixed exchange rate), cutting  its peg to the U.S. dollar, after exhaustive efforts to support it in the face of a severe financial overextension that was in part real estate driven. At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency.  As the crisis spread, most of Southeast Asia and Japan saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt.
- Explain the concept of Hot money with context to the above case (3 marks)
- Why is FDI important to any country(3 marks)
- What is the difference between FDI and FPI (2 marks)
- Explain convertibility of a currency with reference to the above case(2 marks)
Identify if there is any arbitrage opportunity in the sum below
USD/INR Spot   50.1245
3 month USD/INR Forward         50.1267
USD Int rate:- 3%pa       INR Int rate:- 4% pa
Section 2 (solve any 3= 10 marks each)
3a. Factors leading to growth of euro currency market
3b. What are the features of bretton woods system
4a. How can a country correct the balance of payment position
4b. What are the different methods of Hedging.
5a. Find the best alternative to invest 1 Million INR for a period of 3 months
| Currency | Â Â Â Â Â Â Â Spot | Â Â Â Â Â Â Â Forward | Int rate |
| INR | 5-6% | ||
| USD/INR | 54.1123/33 | 54.1221/45 | 3-4% |
| GBP/INR | 80.2378/02 | 80.5543/68 | 2.5-2.8% |
| EURO/INR | 77.8766/99 | 77.9214/67 | 3-3.5% |
5b. For the following quote, calculate Spread, Spread percentage, mid rate and inverse rate AUD SGD 1.5567/04
6a. Compute the arbitrage if any EUR/USD = 0.8631, EUR/GBP = 1.4600 and USD/GBP = 1.6939.
6b. Spot USD AED 3.7584
USD Int rate:- 3% pa
AED Int rate:- 4%pa.
Find the 3 month forward rate and hence find AFM as well.
Prof Vipin Saboo can be contacted on 9820779873 for any further clarifications.
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