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business
international financial management

Questions and Answers of International Financial Management

a What is the difference between bilateral and multilateral cash netting?b Describe a process for implementing bilateral and multilateral netting.
What are the dangers of using derivatives in combination with cash netting for dynamic hedging?
Determine the investment portfolio composition for Kent’s northern branch that would maximize the expected effective yield while satisfying the restriction imposed by the parent.
Determine the financing portfolio composition for Kent’s southern branch that would minimize the expected effective financing rate while satisfying the restriction imposed by the parent.
When the expected interest received by the northern branch and paid by the southern branch of Kent plc are consolidated, what is the net amount of interest received?
If the northern branch and the southern branch worked together, the northern branch could loan its £15 million to the southern branch. Nevertheless, you could argue that the branches could not take
Explain why someone holding dollars would expect the bid/ask spread for the SARUSD to be higher than for the GBPUSD.
Express the following in standard notation:a $1.25 = £1 b 15 ZAR = $1 c $0.27 = 1 SAR
Taking the euro as the home currency:a Write the following in direct form: EURUSD 1.37; GBPEUR 1.2; EURRUB 65; EURBTC 41,039.b Write the following in indirect form: 0.14 CNYEUR, 0.00769 JPYEUR,
Explain why a currency with more units to the dollar is not necessarily a weaker currency.
Go to the website tradingeconomics.com/currencies and calculate for an MNC wanting to acquire currency from a bank:a a 5 per cent increase in the dollar cost of the euro b a 4 per cent fall in the
Go to the website tradingeconomics.com/currencies and calculate the GBPCNY cross exchange rate.
Using the following exchange rates convert $10,000 into the other currency: EURUSD 1.1371; JPYUSD 115.11;USDRUB 74.7476; AUDUSD 0.72676.
From the site www1.oanda.com/currency/live-exchange-rates/ calculate the bid/ask spread for GBPUSD, USDZAR and the ZARUSD. Suggest a reason for any difference.
A German MNC is thinking of investing in foreign government bonds to be held to maturity and is faced with yields of India 6 per cent, Canada 1.43 per cent and Switzerland –0.14 per cent as opposed
If the dollar rises against the euro for three days in a row, what is the most likely rate on the fourth day? Explain your answer.
If the standard deviation in an exchange rate is 0.5 per cent for one month, what is the estimate for one year and what is the basis of this estimate?
How might a listing on the Lusaka stock exchange benefit an MNC and Zambia?
From the website tradingeconomics.com/currencies, list the major currencies in order of their movement against the dollar, giving the percentage movement.(Hint: the year to date (YTD) movement is the
Search for ‘Bank of England exchange rates’ online (www.bankofengland.co.uk/boeapps/database/Rates.asp?into=GBP) and a Download 1 year of daily exchange rates for one of the currencies listed
Market information on the internet. Use your own institution’s currency database or search online for ‘Bank of England Interest & exchange rates data’ to download at least one year of daily
Can ethical behaviour be fully defined or does it clash with cultural behaviour and development (child labour, land clearance and levels of social security being relevant examples)?
Are carbon permits ethical or, like the COP26 disagreement, merely another way of disadvantaging developing countries? Discuss.
What is the ethical argument for and against MNCs moving to countries because of lower labour and energy costs? Recent movements out of China to Asian and South East Asian countries are one such
Describe a Murabaha contract and explain why it is ethically superior according to Islamic finance.
What are the justifications for charging 2,000 per cent?
How does a sukuk differ from an ordinary bond?
What is the role of profit sharing in Islamic finance contracts?
How green are electric vehicles and nuclear fuel? Use the arguments on the internet to form a reasoned opinion.
Why is the law of comparative advantage less effective in the current business environment?
Rank the five areas of discontent in terms of their ethical implications and justify your choice.
‘It is not the rating agencies that dictate the policies of France’. Is this true? Does the marketplace rule governments?
Rank the Green movement’s set of principles in order of their solvability and justify your choice.
Is Islamic finance just a matter of engaging in Islamic contracts or does it offer lessons for MNCs who engage in ordinary financial contracts?
ABC plc seeks to move production to the Far East. What ethical considerations if any should it take into account in assessing the profitability of the exercise?
Is trade better than aid? Discuss.
To what extent is the law of comparative advantage undermined by technology and ethical standards making free trade no longer the foundation of developed economies?
From the tradingeconomics.com/currencies site calculate the top three largest increases and decreases against the dollar (hint: take care over direct and indirect quotes, a graph can be obtained by
What is meant by mixed trading and what are the implications for an MNC trading in a number of currencies?
If the dollar becomes relatively expensive what are the implications for a UK importer from the US and a US investor holding bonds in the UK and thinking about investing further in the UK?
Why is it important that markets are deep?
Estimate the effect on the SEKINR exchange rates if Swedish inflation is (1) higher, (2) the same and (3) lower than India. What would be the effect on exchange rates of the Swedish krona with other
If interest rates are higher in Bahrain than in Switzerland, what effect will this have on the exchange rate between the Bahraini dinar and the Swiss franc for investors in each of the countries?
What do you expect will be the pressure on an exchange rate between countries if one country has a higher income level than the other country?
a List three ways in which the government can affect exchange rates and evaluate these methods in terms of their effect on the exchange rate and the cost of the interventions.b Go on the internet,
How can the release of statistics showing an improvement in the economic outlook of a country leading to a fall in the value of the currency?
Assume that the UK invests heavily in government and corporate securities of Country K. In addition, residents of Country K invest heavily in the UK. Approximately £10 billion worth of investment
What is meant by homogenous expectations, and what is the relevance of this concept in understanding exchange rates?
Who are the differing ‘players’ in the exchange market and what is their effect on the exchange rate?
Why might a country with higher interest rates not attract foreign investors?
If an exchange rate does not change between two countries, what happens to the buying power of the country experiencing higher inflation?
Summarize (using the internet) Venezuela’s or Turkey’s hyperinflation, government attempts to control it and the behaviour of the exchange rate.
Explain what is meant by each of a fixed, managed float, pegged and freely floating exchange rate policy.
Explain the advantages and disadvantages of each of the fixed, managed float, pegged and freely floating exchange rate systems.
What is a currency board and what is its purpose?
How is a pegged system exposed to interest rate movements?
Does the euro represent an optimal currency area?
Compare and contrast Black Wednesday (1992) with the eurozone crisis using the concept of an optimal currency area.
Why would a government seek to unpeg its currency and what examples are there in history of this being done?
What is the difference between sterilized and non-sterilized intervention?
What is meant by indirect intervention?
What effect does a strong and a weak currency have on an economy?
What is the Balassa Samuelson effect?
What is the trilemma of government policy choice?
Why do free capital movements and fixed exchange rates dictate monetary policy?
Summarize the interwar period: what effect does it have today?
Consider whether or not the euro borrowing requirements should be relaxed as demanded by Greece (use data from data.worldbank.org/ to support your argument.
Why would an MNC seek to make its own forecast rather than rely on PPP or IFE or any other model?
What MNC decisions would be affected by a currency forecast?
A fellow manager notes that the recent government announcement of a current account deficit is good news.Explain how this might be true.
Why would you expect random movements to be a sign of a share reacting to information?
What is the relationship between random movement and a normal distribution?
Outline the meaning of weak, semi-strong and strong form efficiency in the context of exchange rate behaviour.
From the internet:GBP/JPY Price Analysis: Weekly W-formation remains in play● GBP/JPY bears engaging in a phase of distribution.● Bears to target the neckline of the weekly W-formation.As per the
a What is meant by technical forecasting and why is it subject to relatively few academic papers compared to other approaches to modelling?b Determine whether the following excerpts from the press
What is meant by homogeneous expectations and how is it relevant to technical forecasting?
What is meant by a lagged impact on exchange rates and why might inflation be one example?
You develop a model based on PPP but you find that the results are not that good. Explain possible reasons for the poor model.
What is mixed forecasting and why might it be better than other methods?
An MNC might want to access forecasting services. What are the arguments for and against such a move?
Explain why the forward rate as a predictor of the future spot is generally no better than the current spot.
What is the difference between the random movement of exchange rates and the actual movements of exchange rates over time?
Locational arbitrage. Explain the concept of locational arbitrage and the scenario necessary for it to be plausible.
Locational arbitrage. Assume the following information:Given this information, is locational arbitrage possible? If so, explain the steps involved in locational arbitrage, and compute the profit from
Triangular arbitrage. Explain the concept of triangular arbitrage and the scenario necessary for it to be plausible.
Triangular arbitrage. Assume the following information:Given this information, is triangular arbitrage possible? If so, explain the steps that would reflect triangular arbitrage, and compute the
Covered interest arbitrage. Explain the concept of covered interest arbitrage and the scenario necessary for it to be plausible.
Covered interest arbitrage. Assume the following information:Given this information, what would be the yield (percentage return) to a UK investor who used covered interest arbitrage? (Assume the
Interest rate parity. Explain the concept of interest rate parity. Provide the rationale for its possible existence.
Inflation effects on the forward rate. Why do you think currencies of countries with high inflation rates tend to have forward discounts?
Covered interest arbitrage in both directions. Assume that the existing UK one-year interest rate is 10 per cent and the EU one-year interest rate is 11 per cent. Also assume that interest rate
Interest rate parity. Why would UK investors consider covered interest arbitrage in France when the interest rate on euros in France is lower than the UK interest rate?
Interest rate parity. Consider investors who invest in either US or UK one-year Treasury bills. Assume zero transaction costs and no taxes.a ‘If interest rate parity exists, then the return for UK
Changes in forward premiums. Assume that the Japanese yen’s forward rate currently exhibits a premium of 6 per cent and that interest rate parity exists. If eurozone interest rates decrease, how
Changes in forward premiums. Assume that the forward rate premium of the euro was higher last month than it is today. What does this imply about interest rate differentials between the US and Europe
a Go to the www1.oanda.com/currency/live-exchange-rates/ website and calculate the triangular arbitrage outcome for £100 (GDP) converted to Japanese yen (JPY) via the euro (EUR). Compare your result
Explain to a non-financial manager in charge of foreign purchasing what is meant by purchasing power parity(PPP).
What is meant by absolute PPP and why do you think that the internet might restore the relevance of absolute PPP?
What is meant by relative PPP and explain why this is an important development of PPP.
In words, explain the PPP formula with only ef on the left-hand side and the rearranged formula with only home inflation on the left-hand side (Ih). Why would you choose one form over the other?

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