PROGRAM - MBA
SEMESTER - 4
SUBJECT CODE & NAME - MF0015 & INTERNATIONAL
FINANCIAL MANAGEMENT
1. Explain Globalization. What are the Advantages of Globalization and
Disadvantages of Globalization ?
Globalization
Globalization can be
defined as the process of international integration that arises due to
increasing human connectivity as well as the interchange of products, ideas and
other aspects of culture. It includes the spread and connectedness of
communication, technologies and production across the world and involves the
interlacing of cultural and economic activity. The term 'globalization' was
used by the late professor Theodore Levitt of Harvard Business School in an
article titled 'Globalization of Markets' which appeared in Harvard Business Review
in 1983. The world turning into a global market has its own advantages and
disadvantages for various countries.
During
the last couple of years, there has been a rapid internationalization of the
world financial markets. The US financial investors have invested heavy funds
into overseas markets to reap the
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2. In foreign exchange market many
types of transactions take place. Explain the meaning and role of forward,
future and options market.
Forward Market
In the forward market,
contracts are made to buy and sell currencies for future delivery, say, after a
fortnight, one month, two months and so on. The rate of exchange for the
transaction is agreed upon on the very day the deal is finalized. The rate of exchange
for the transaction is agreed upon on the very day the deal is finalized. The
forward rates with varying maturity are quoted in the newspapers and those
rates form the basis of the contract. Both parties have to abide by the
contract at the exchange rate mentioned therein irrespective of whether the
spot rate on the maturity date resembles the forward rate or not. The value
date in case of a forward contract lies definitely beyond the value date
applicable to a spot contract.
Sometimes
the value date is structured to enable one of the parties to the transaction to
have freedom to select a value date within the prescribed period. This happens
when the party does not know in
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3. Explain Swap, its features and
types of Swap.
Swap is an agreement between two or more parties to exchange sets
of cash flows over a period in future. The parties that agree to swap are known
as counter parties. It is a combination of a purchase with a simultaneous sale
for equal amount but different dates. Swaps are used by corporate houses and
banks as an innovating
financing instrument that decreases borrowing costs and increases control over
other financial instruments. It is an agreement to exchange payments of two
different kinds in the future. Financial swap is a funding technique that
permits a borrower to access one market and then
exchange
the liability for another type of liability. The first swap contract was
negotiated in 1981 between Deutsche Bank and an undisclosed counter party. The
International Swap Dealers association
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4. Explain in detail the types of
exposure and measuring economic exposure.
Types of Exposure
There are different
types of exposure to which a particular company-domestic or international—is
exposed to. The types of exposure are related to two parameters:
1. One is related to
the time of the transactions, the transactions and the flows of money (payment
and receivables) related to them and the other one to the aspect of conducting
international business in host countries.
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5. Elaborate on the tools of foreign exchange risk management and
techniques of exposure management.
Tools of Foreign Exchange Risk Management
Various financial
instruments are used by companies in India and abroad in order to hedge the
exchange risk. Such kinds of instruments are available to the company at
varying costs. The various tools that hedge the different kinds of risks are
given below:
•Forward contracts: A
forward contract is a non-standardized contract that takes place between two
parties for the purpose of selling or buying an asset at a specified future
time at a price that has already been agreed. The party who buys the underlying
position assumes a long position and the party who sells the asset assumes a
short position. Delivery price is the price that has been agreed upon. It is
one of the most common means of hedging transactions in foreign currencies. It
offers the ability to the
users to
lock in a sale price or a purchase without the involvement of any direct cost.
It is also used by
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6. Write short note on:
a. Adjusted present value model
(APV model)
b. Forced Disinvestment
a. Adjusted present value
model (APV model)
Debt has an advantage
over equity since the interest paid on debt is almost always deductible from
income while calculating corporate taxes, which is not the case for dividends
on equity. So, the post cost of debt is less than the pretax cost of debt. Debt
creates additional value for a project. How is this so? By
reducing
the taxes paid, so adjustments to the calculation of the project’s present
value must be made if it supports additional debt. Therefore, the contribution
to present value of issuing debt is calculated as the present value of tax
savings. This present value (PV) can then be added to the PV of a project
calculated using the all-equity cost of capital. The method of adding the tax
benefits of debt to the
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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 key responsibilities of the Chief Financial Officer (CFO) of a
company.
Below figure depicts the
varied aspects of treasury management.
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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
transactions and its
aim is to
develop, liberalise and promote forex market and its effective
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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 detailed study,
research and methods
developed specifically for the concerned activity and its risk
component.
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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 as a profit center.
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.
Thus a decision related to
money market instruments, for example, is taken after reviewing possible forex
actions that could enhance the benefit of the decision.
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PROGRAM - MBA
SUBJECT CODE & NAME - MF0017 & MERCHANT
BANKING AND FINANCIAL SERVICES
1. Rating methodology is used by
the major Indian credit rating agencies. Explain the main factors of that are
analysed in detail by the credit rating agencies.
The following are the main
factors that are analysed in detail by the credit rating agencies:
(i) Business risk analysis : Business
risk analysis focuses on analysing the industry hazards, market position of the
company, operating competence and legal position of the company. The industry
risk by taking into consideration various factors like strength of the industry
prospect, nature and basis of competition, demand and supply position,
structure of industry, pattern of business cycle etc. How the industry players
are competing with each other on the basis of price, product quality,
distribution capabilities etc are also analysed. Industries with stable growth
in demand and flexibility in the timing of capital outlays are in a stronger
position and, therefore, enjoy better credit rating. For example, a seasonal
business like hiring of vacation
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2. Give the
meaning of the
concept of venture
capital funds. Explain
the features of venture capital fund.
Meaning of venture capital funds
Venture capital is the money
provided by investors to start firms and small businesses with long-term growth
potential. This is a very important source of funding for start-ups that do not
have access to capital markets. It typically entails high risk for the
investor, but it has the potential for above-average returns. Venture capital
can be defined as investment (long term) which is made in:
•
Ventures that are promoted by persons who though they
are qualified andtechnically sound but do not have any entrepreneurial
experience.
•
Projects which involves high degree of risk.
The concept
of venture capital financing is very old but today’s changing business
environment makes it more tempting for businesses. The reason being, venture
capital companies give risky
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3. Hire purchase
is one of
the important concept.
There are certain
features of hire purchase
agreement. Explain the points
in it. Differentiate between
hire purchase and leasing.
Concept of hire purchase
In a hire purchase
system, the buyer acquires the property by promising to pay in monthly,
quarterly and half-yearly installments. The period of payment has to be fixed
while signing the hire sale agreement. Though the buyer acquires the asset
after signing the agreement, the title of ownership remains with the vendor until
the buyer pays the entire liability. When the buyer pays the entire installment
and any other obligation according to hire purchase agreement, only then the title
of ownership of goods would be transferred to the hirer. If the hirer makes any
default in the payment of any installment, the hire vendor has the right to
reposses the
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4. Explain the concept of
Depository receipts. Write down the difference between American Depository
Receipts (ADR) and Global Depository Receipts (GDR) and also mention the issues
involved in ADR/GDR.
Depository Receipts
Depository receipts are
securities that are traded in foreign currency. These receipts are issued by
the foreign bank or institution which acts as a depository of shares issued by
a domestic company.
Depository receipts can be
classified into sponsored and unsponsored ones.
1.Sponsored depository receipts:It
is created by a single depository which is appointed by the issuing company
under rules provided in a deposit agreement. The issues of sponsored ADR/GDR
require prior approval of the Ministry of Finance.
2.Unsponsored
depository receipts:These are issued without any formal agreement between the
issuing company and the depository, although the issuing company must consent
to the
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5. What is Online Trading? Explain
the process of online trading.
Measuring and explanation of Online Trading
Online trading is one of the
crucial financial services provided by financial institutions and merchant
bankers. For example, Indiabulls Securities Limited is one of India’s foremost
stock brokerage house having a pan India presence. The organization is a pioneer in providing
online stock trading platform in India and currently has a customer base of
seven lakh customers.
Online
trading is completed through Bombay Stock Exchange (BSE) and National Stock
Exchange (NSE). Market timings are 9 am to 4 pm and traders carry out trading
in these markets. On a day’s trading, stock rise is dependent and fluctuations
are linked to the trading
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6. Write short notes on:
Depository Participants
Depository Participants
All the
functions performed by depositories are actually executed by the depository
participants (DPs). All activities related to recording of allotment of
securities, transfer of securities etc. are executed through depository
participants and no investor can directly open an account with a depository. A
depository can enter into an agreement with various depository participants who
would work as agents of the depository. Depository Participant works as an
intermediary between the investor and depository and they are called as agents
of the depository. The Depositories Act, 1996, and SEBI (Depository &
Participants) Regulations,
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PROGRAM - MBA
SEMESTER - 4
SUBJECT CODE & NAME - MF0018 & INSURANCE AND
RISK MANAGEMENT
1. Explain price risk and its types. Explain Risk management methods
Price risk
Price risk represents
the uncertainty about the magnitude of cash flows because of the probable
changes in the input and output prices.Output price risk stands for the risk of
changes in the prices which an organization may ask for its goods and services.
Input price risk means the risk of changes in theprices which a company has to
pay for materials, labour and other inputs in the production process. In
strategic management, the analysis of price risk related to the sale and production of
the prevailing and
future products and services plays a significant role.
There are three basic types of
price risk:
• commodity price risk
• exchange rate risk
and
• interest rate risk
Commodity
price risk is born of the fluctuations inthe prices of commodities, like
copper, coal, oil, gas and electricity. These constitute the inputs for some companies
and outputs for others. With economic
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2. An organization is a legal
entity which is created to do some activity of some purpose. There are
elements of a
life insurance organization.
Explain the following
elements of life insurance organization.
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 nominations, assignment,
alteration of terms, surrenders and payment of claims.
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3. Explain the
doctrine of indemnity,
doctrine of subrogation
and warranties and
its types and classification.
Doctrine of Indemnity
The doctrine of
indemnity aims to compensate for the insured for a loss sustained, and the
compensation should be such as to place him as nearly as possible in the same
pecuniary position after the loss as he occupied immediately before the
occurrence. The insured cannot claim anything in excess ofthe amount required
to recoup the actual loss sustained. The insurers undertake to make good the
insured’s loss by monetary payment or by reinstatement or replacement so that
the insured shall be fully indemnified, butthis is subject to the sum insured. The
law does not sanction any insurance which would enable the insured to profit by
the destruction of the thing destroyed.
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4. Give short notes on :
(i) Evidence and claim notice.
(ii) Subrogation
(iii) Salvage
(i) Evidence and claim notice.
When the policy has
been issued, the risk for the danger insured against gets covered. In the case
of the occurrence of the contingency against which protection is given, the
insured has to file a claim on the insurer
for the indemnification of the loss. In case the incidence of loss does
not happen, the insured is not entitled for the payment.
Evidence
To admit
a claim, appropriate evidence related to the
policy is needed. In marine insurance the policy is generally issued on
mutual understanding and good faith of both the parties. However, at the time
of claim, the insurer should satisfy itself about the information furnished by
the insured. The value of subject matter, nature of the subject matter,
warranties, insurable interest, etc., are some of the matters to be considered
at the time when the claim arises. For these purposes, the production of
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5. Briefly explain the marketing mix (7 P’s) for insurance companies
Marketing Mix (7 P’s) for Insurance Companies
Marketing for insurance
companies implies marketing insurance services with the objective to create a
customer base and make profit by the means of customer satisfaction. This
emphasizes on forming an appropriate marketing mix for insurance
business for the insurance organization to sustain in the industry. The marketing mix is a
conglomeration of marketing activities managed by an organization in order to
meet the requirements of its targeted market to the greatest extent. Since the
insurance business deals in selling services, the marketing mix is essential
for this sector.
The marketing mix is
inclusive of the combinations of the 7 P’s of marketing, i.e., product, place,
price, people, promotion, process and physical attraction. The 7 P’s mentioned
above can be utilized for the marketing of insurance products as follows:
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6. Elucidate the benefits of
reinsurance. Elaborate on the application of reinsurance.
Benefits of Reinsurance
The main benefits of
reinsurance to the insurance companies are as follows:
(i) Increase in risk-taking capacity
As the direct insurer
can reinsure part of certain risks, itcan therefore accept more of the original
risk. It could be that a particu-lar insurer has calculated that it would not
want to provide fire insurance cover for manufacturers of plastic goods for the
sum insured in excess of `10,00,000. Should it then receive an
enquiry
from a potential insured for a sum of
`40,00,000, it would be in a difficult position if there
was no reinsurance. The said
insurer could accept
only `10,00,000 and ask the client to approach one or more insurers for the balance sum insured of `30,00,000. This will be not only
inconvenient for the client, but also inconvenient for the original insurer as
it may run the risk of losing the proposals
to
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