PROGRAM - MBA
SUBJECT CODE & NAME - MF0015 & INTERNATIONAL
FINANCIAL MANAGEMENT
1. Discuss the goals of
international financial management
Goals of international financial management
Effective
financial management is not limited to the application of the latest business
techniques or functioning more efficiently but includes maximization of wealth
meaning that it aims to offer profit to the shareholder, the owners of the
businesses and to ensure that they gain benefits from the business decisions
that have been made. So, the goal of international financial management is to
increase the wealth of shareholders just like in domestic financial management.
The goals are not only limited to just the shareholders, but also to the
suppliers, customers and employees. It is also understood that any goal
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2. The key component of the financial system is the money market that acts
as a fulcrum of monetary operations.
Write down the important points under each category mentioned below.
a) Functions performed by money
market
b) International interest rates
c) Standardized Global Market
regulations.
a) Functions performed by money
market
One of the key
components of the financial system is the money market that acts as a fulcrum
of monetary operationsthat are carried out by the Central bank while pursuing
the objectives of monetary policy. The maturity of such markets range from
overnight to a year and involves financial instruments that are considered as
close substitute of money. There are three broad functions that are performed
by the money market.
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b) International interest rates
Money
market rates are interest rates used by banks for operations among themselves.
Money market enables the banks to trade their surpluses and deficits. This rate
is also commonly known as inter-bank rate. The rates for various countries vary
substantially. The reason for this substantial difference in rates is due to
the interaction of supply or availability of short term funds (bank deposits)
in a particular country versus the demand by borrowers for short term funds in
that country. If the supply is more than
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c) Standardized Global Market
regulations.
Regulations
contribute to the development of international money markets because these
impose restrictions on local markets. Local investors and borrowers try to
circumvent the restrictions in local markets. Difference in regulations among
countries puts banks in some countries to advantageous position compared to
banks in other countries. Over a period of time, international banking
regulations
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3. Thousands of years back the concept of bartering between parties was
prevalent, when the concept of money had not evolved. Explain on counter trade
with examples
Countertrade
Thousands of years ago,
the concept of bartering between parties was prevalent, when the concept of
money had not evolved. A person could give say 100 bags of wheat and get wood
or coal, a certain quantity for cooking. These bartering contracts were between
individuals or small kingdoms. Bartering exists today also but at different level.
For example, Iran may give 100 million barrels of oil to France and get 5000
guns of certain type in exchange. We can say that bartering is exchange of
goods between parties as per agreed terms without the use of money.
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4. There are different techniques of exposure management. One is the
Managing Transaction Exposure and the other one is the managing operating
exposure So you have to explain on both Managing Transaction Exposure and
Managing Operating Exposure.
Techniques of Exposure Management
Managing Transaction Exposure
Transaction exposure
calculates gains or losses which occur after the current financial compulsions
according to terms of reference are resolved. Taken that the deal would lead to
a future inflow or outflow of foreign currency cash, any unprecedented
alterations in rate of exchange amid the period in which transaction is entered
and the time taken for it to settle in cash would guide to a change in worth of
net flow of cash in terms of the home currency. For example a transaction
exposure of an Indian company will be the account receivable which is
associated with a sale denominated in US dollars or the compulsion of an
account payable in Euro debt.
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5. Every firm
is going on concern, whether domestic or MNC.
Explain the techniques of capital budgeting and the steps to determine
cash flows.
Techniques of Capital Budgeting
There are many
techniques which can be used to analyze the projects. These techniques can be
broadly classified into discounted cash flow techniques, which include net
present value (NPV), internal rate of return (IRR), profitability index (PI)
and discounted payback methods, and non-discounted cash flow techniques which
include payback and accounting rate of return (ARR) methods. The most commonly
and most widely accepted technique is NPV method. We now describe some of these
techniques in brief and NPV method in greater detail.
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6. Write short note on:
a. American Depository Receipts(ADR)
b. Portfolio
a. American Depository Receipt (ADR)
It represents ownership
in the shares of a non-US company and trades in the American stock markets.
ADRs enable American investors to buy shares in foreign company without any
issue of cross-border and cross-currency transactions.
ADRs
carry price in American dollar, pay dividend in the same currency and can be
traded like any other share of US-based companies. Each ADR is issued by a US
depository bank and can represent one share. The owner of ADR has the right to
obtain the foreign stock it represents, but US investors are more
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b. Concept of Portfolio
MNC makes two types of
investment decisions that are as follows:
•Portfolio investment
decisions
•Foreign direct
investment decisions
Portfolio is the
combination of assets so as to reduce the risk by diversification.
There are two major
types of risks that are as follows:
1.
Systematic risk: It is also known as market
risk. It is the risk common to all securities and all companies. These risks
cannot be diversified away and some examples are interest rates, recessions and
wars. Technically speaking, it is that part of the total variability of return
caused by external variables
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PROGRAM - MBA
SUBJECT CODE & NAME - MF0016 & TREASURY
MANAGEMENT
1. Give the meaning of treasury
management. Explain the need for specialized handling of treasury and benefits
of treasury.
Treasury Management
Treasury management
is the planning,
organising and control
of funds required by a corporate
entity. Funds come in several forms:
cash, bonds, currencies, financial derivatives
like futures and
options etc. Treasury management covers all these and the
intricacies of choosing the right mix. According to Teigen Lee E, “Treasury is
the place of deposit reserved for
storing treasures and
disbursement of collected
funds”. Treasury management is one
of the
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2. Explain foreign
exchange market. Write
about all the
types of foreign
exchange markets. Explain the participants in foreign exchange markets.
Foreign Exchange Market
Foreign Exchange
market (forex market)
deals with purchase
and sale of foreign
currencies. The bulk
of the market
is “over the
counter” (OTC) i.e. not through
an exchange which is well regulated.
International trade
and investment essentially
requires foreign markets. Banks act as intermediaries and
perform currency exchange transactions by quoting purchase and selling prices.
In India
the Foreign Exchange
Management Act (FEMA)
1999 is the
law relating to forex
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3. Write an overview of risk
mitigation. Explain the processes of risk containment. Write about the tools
available for managing risks.
Risk Mitigation
Risk mitigation can be
handed in four ways:
a) Risk
avoidance: We can
withdraw from an
activity perceived to be
risky, and elect not to go through with it.
b) Risk transfer: We can insure ourselves
against the risk and transfer it to another party called the insurer.
c) Risk
sharing: We can
disperse the risk
element in an
activity and reduce its impact,
by the use of derivative instruments,
d) Risk acceptance: We can build our competence
and capability to deal with the risk
by
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4. What is Interest Rate Risk Management
(IRRM)? Write the components and features of IRRM. Explain the macro and
micro factors affecting interest rate.
Interest Rate Risk Management (IRRM)
Interest Rate Risk is the
risk
·
to the earnings from an asset portfolio caused
by interest rate changes
·
to the economic value of interest-bearing assets
because of changes in interest
rates
·
to costs of fixed-rate debt securities
from falling bank rates
·
to impact of interest rates on cost of
capital used by the firm as hurdle rate for capital investment
Components of IRRM
IRRM can
be broken into
three parts: term
structure risk, basis
risk and options risk.
Term
structure risk also
called yield curve
risk is the
risk of loss
on account of mismatch
between the tenures
of interest-bearing monetary assets and liabilities. For
example if
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5. Explain the contents of working capital. Write down the need for
working capital.
Contents of working capital
Working capital
comprises the working
assets of a
firm. What are these assets? Look at the items in these examples.
• A
trading business for
instance may have
to purchase and
store products to be
sold, paying for
them before they
can be sold
and cashed. A factory
that produces and
sells products has
to store raw materials and finished goods, besides
having some unfinished materials under process.
• A company may also need to allow the
customers to pay later instead of insisting on cash at the point of
delivery.
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6. Explain the concepts and benefits of integrated treasury. Explain the
advantages and disadvantages of operating treasury.
Concept and Benefits of Integrated Treasury
The concept of integrated
treasury works on the principle that Treasury can be a
single unifying force
of a company’s
activities in the
money market, capital market and
forex market; and can help the company derive synergy. Synergy is a powerful
advantage in business because it brings together two or more activity domains
and achieves a total effect that is greater than the sum of all the individual
domains.
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PROGRAM - MBA
SUBJECT CODE & NAME - MF0017 & MERCHANT
BANKING AND FINANCIAL SERVICES
1. Explain the concept of merchant
banking. Give a small introduction on book building and write about the methods
and guidelines for book building.
A. Concept of merchant banking
Merchant banking
is an essential
service provided by
financial institutions that help
in the growth of corporate sector, which eventually reflects in the overall
growth and economic development of the country.
Merchant banking in India
The need
for merchant banking was felt with the rapid growth in number of issues made
and initiated into
Indian capital market.
The National and Grindlays Bank (NGB) then got the license
from RBI in 1967. Later in 1970, First National City Bank (FNCB) set up a
merchant banking division. As a commercial
activity, merchant banking
took shape in
India through the management of
public issues of
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2. Explain the whole concept of
issue management which includes pre-issue and post issue management.
A. Introduction of issue
management
Issue management is an
important function of merchant bankers and lead managers. It
helps the corporate
clients to raise
funds from the
capital market. Issue management is the management of issues for raising
funds using different types of instruments.
In India,
merchant bankers perform
activities related to
management of capital issues.
Management of corporate shares has two phases:
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3. Financial services are of
several kinds. Financial services are divided into two extensive categories.
Explain in detail both the categories of financial services.
A. Complete explanation of fund
based services
Asset based
financial services facilitate
corporate and other
business entities to mobilise
resources at lower
rates and open
up investment opportunities with
enhanced returns. These
services enable the
corporate institutions, in particular, to reject the traditional bank
finance and opt for the more competitive financial market. The debt market
enables a borrower to organise his borrowings and structure the repayments to
match future cash flows. The investment
options have widened
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4. Give the difference between
Bank Vs Depository. Explain the functions performed by depository.
Functions Performed by a Depository
Several functions are
performed by a depository. Some of them are mentioned below:
1.Dematerialization:
The main function of a depository is to provide the facility of
dematerialization of securities and elimination of physical securities in the
market. The dematerialization of securities is necessary to increase
transparency in the working of stock exchanges and to reduce several types of
risk associated with paper form of securities.
2.Account opening/modification/closure:
An investor cannot deal with a depository directly. He has to deal with the
depository through its authorized agents known as depositary participants who
are registered with a depository. Opening an account with a depository participant
is like opening an Differences
between a Bank and a Depository
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5. Give the introduction of leasing
with an example. Explain all the four types of leasing.
A. Introduction of leasing with
example
Lease is basically a
contractual agreement between a renter and an owner. For example, the landlord
and the tenant. Leasing can be defined as a deal by which one can get the use
and control over an asset without buying the asset. So, by this arrangement,
one can use the asset without owing it. This is a contract between the lessor
(owner of the assets) and the lessee (user of the asset), where the lessor
gives the right to use the asset to the lessee for a specific period of time
(lease period) and on the payment of some amount, i.e., consideration called
rentals (lease rentals). The lessee pays these lease Differences between a Bank and a Depository
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6. Write about the concept of
securitization and its features . Explain the process of securitization of
debts and its advantages.
Introduction of securitization
Securitization is a
process by which long-term loans, lease receivables, credit card balance, hire
purchase debtors and trade debtors are converted into securities and are issued
to potential investors. In other words, if some assets have predictable cash
flows associated with them and a minimum default rate risk, they are converted
into tradable negotiable certificates and given to the potential investors.
Thus, the securitization process converts long-term assets into cash/liquid
assets. Securitization should not be Differences
between a Bank and a Depository
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PROGRAM - MBADS
SUBJECT CODE & NAME - MF0018 & INSURANCE AND
RISK MANAGEMENT
1. What do you understand by the
term risk and uncertainty? Explain different types of risk facing business and
individuals.
A. Introduction of risk and
uncertainty
The expression
‘risk’ can be interpreted from different perspectives. At its most general
level, risk is used to describe any situation involving an uncertainty about the
outcome. Life is obviously very risky. Even the short-termfuture is often highly uncertain.
In probability and
statistics, financial management
and investment management, risk is often used in a more particular sense
to indicate the possible variability in the outcomes
around some expected value.
For instance, an entrepreneur may
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2. Identify the role of insurance
in managing risk financing. Explain the importance of insurance transaction.
Discuss in different perspectives of insured and insurer
A. Role of insurance in managing
risk financing
Business
organizations and individuals take insurance policies. These insurance policies
help them to cover the losses in case of any emergency. Here, the idea is to
transfer the risk involved with the business to the insurance provider by
taking an insurance policy. This insurance policy will honour claims in case
certain emergencies disrupt the working of the organization. This type of
financing strategy offers the benefit of knowing that even if the project faces financial trouble due to unseen
events, the
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3. Explain the reasons that have
been responsible for the privatization of the insurance industry in the
country. Identify the problems and prospects of public insurance enterprises.
A. Complete information on the
privatization of the insurance industry
Privatization
of the insurance industry includes recommendations of Malhotra Committee, amendments
to the General
Insurance Business Act 1972, amendment to the Insurance Regulatory
and Development Act 1999. Thereafter, the LIC (Amendment) bill was passed in
2009. The LIC of India put forward a commendable performance to achieve various
objectives of nationalization. It spread its wings throughout the country by
opening more than 2000 branch offices and placing its agents and development
officers in every nook and corner of the country. However, in view of the great
magnitude
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4. Explain the creation and
application of insurable interest. Give the differences between wagering and
insurance.
A. Creation of insurable interest
There are a number of
ways in which insurable interest will arise or be limited:
(a) By common law: Where the essential elements of insurable
interest are automatically present, the same can be described as having arisen
at common law. The common law duty of care which one owes tothe other may give
rise to a liability, which again is insurable.
(b) By contract:
In some contracts a
person will agree to
be liable for something which he
or she would not ordinarily be liable for.
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5. Give the important activities
of life insurance company. Describe the important historical milestones in the
development of the life insurance sector in India.
A. Important activities of life
insurance company
The important
activities in a life insurance company are:
• Procuring applications
or proposals from
prospective buyers of
life insurance
• Scrutinizing and
making decisions on the proposals for insurance. This is called underwriting.
• Issuing the policy
document, incorporating the terms and conditions of the insurance cover.
• Keeping track of the
performance of the insurance contract by either party, like payment of premium
or payment of benefits.
•
Attending to the various requirements that may arise during the duration
of the
contract like
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6. Give short notes on :
Pricing objectives
I. Rate adequacy
To avoid
financial problems and insolvency, insurance company rates must be
adequate in the light of
benefits promised under the
company’s insurance products. Rate adequacy means that for a given block of policies, total payments
collected now and in the future by the insurer plus the investment earnings
attributable to any net retained funds
are sufficient to fund the current and future benefits
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Pricing elements
The pricing elements
underlying the pricing of life and health insurance contracts are:
• expected mortality or
morbidity experience
• expected investment
return
• expenses
1. The probability of the insured
event occurring
It is
shown by mortality tables in life insurance and morbidity tables in health
insurance. The part of risk
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Rate computation
1. Yearly renewable term life
insurance
This plan provides
coverage for one year only but guarantees renewal irrespective of the
insurability of the policy owner. Premium depends on the rate of mortality. As
age increases, premium rate increases. Therefore, there is a possibility that
those in good health discontinue the policies because of burdensome premium.
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