International Financial Management

5028 WordsJul 1, 201221 Pages
EXAMINATION PAPER OF INTERNATIONAL FINANCIAL MANAGEMENT Section A: Objective type Part One: 1). Foreign exchange market in India is relatively very Answer: b). Small 2). Balance of payment is a systematic record of all ___________ during a given period of time. Answer: c). Economic Transactions 3). Merchandise trade balance, services balance & balance on unilateral transfer are the part of _________ account. Answer: a). Current Account 4). Interest rate swaps can be explained as an agreement between ___________ parties Answer: b). Two 5). Capital account convertibility in India evolved in August Answer: c).1994 6). Interest rate parity is an economic concept, expressed as a basic algebraic identity that…show more content…
So, domestic investors can benefit by investing in the foreign market. If domestic interest rates are more than foreign interest rates, foreign currency must trade at a forward premium to offset any benefit of higher interest rates in domestic country to prevent arbitrage. If foreign currency does not trade at a forward premium, or if the forward premium is not large enough to offset the interest rate advantage of domestic country, arbitrage opportunity exists for foreign investors. So, foreign investors can benefit by investing in the domestic market. 2). What are Direct & Indirect Quotes of exchange rates? Forex rates in the currency exchange market are displayed in pairs by market makers (or dealers). Exchanges rates on the other hand are forex rates or FX rates that represent the value of one currency in relation to another currency. For e.g., 1USD = 96.62 JPY. This is the exchange rate between the US Dollar and Japanese Yen, which means that 1 US dollar is equal to 96.62 Yen. This would be represented as USD/JPY = 96.62. In other terms a spot exchange rate is one at which currency can be sold or bought for immediate delivery which two business day after the transaction. In spot exchange market the quote for a currency may be direct or indirect. a). Direct Quotes : Direct quote means indicates how many units of local
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