ASSIGNMENT
DRIVE SPRING 2019
PROGRAM MASTER OF BUSINESS
ADMINISTRATION- MBA
SEMESTER SEMESTER IV
SUBJECT CODE & NAME FIN 401 –
INTERNATIONAL FINANCIAL MANAGEMENT
SET-1
Q.1
The balance of payment statement summarizes the Economic transactions of a country’s
residents in relation to the rest of the world.
Explain
the major accounts of the Balance of Payment Statement 10
Answer
:
Major accounts of the Balance of
Payment Statement :
The
economic transactions of a country’s residents in relation to the rest of the
world are summarized by the balance of payments statement. It also presents the
transactions of movements in official reserves, the net income that has been
generated abroad and the transactions that take place in the physical and financial
assets. The BOP consists of current account, capital account and reserve
account.
The Current Account :
The
current account of the balance of payments refers to the monetary value of all
exports and imports of merchandise and invisibles. All international flows
associated with transactions in goods and
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Q.2
In Forward market, contracts are made to buy and sell currencies for future
delivery.
Explain
what do you mean by Forward Markets
10
Answer
:
Forward Markets :
In
the forward market, contracts are made to buy and sell currencies for future
delivery, say, after a fortnight, one month two months, or three months. 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 the parties have to abide
by the exchange rate mentioned in the contract irrespective of whether the spot
rate on the maturity date is more or less than that of the forward rate. In
other words, no party can back out of the
Q.3
Explain the various aspects that needs to be considered in order to decide the
sources of Funds.
Explain
any ten aspects that needs consideration while deciding the sources of funds
Answer
:
1.
Cost:
Both types of cost i.e. the cost of
procurement of funds and cost of utilizing the funds should be taken into
account while deciding about the source of funds .
2.
Financial strength and stability of operations:
The financial strength i.e. sound
financial position to repay the principal amount and interest on the borrowed
amount is a major factor for this choice. When the earnings of the organization
are not stable, fixed charged funds like preference shares and debentures
should be carefully selected as these
SET-II
Q.1
There are various financial instruments that are used by companies in India and
abroad
in order to hedge the exchange risk
Explain
the tools that are used to hedge different kind of risks. 10
Answer
:
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:
Q.2
Corporate financial decisions include exchange rate forecasts as one of the
most
important
inputs.
Explain
the Various approaches to Forecasting. 10
Answer
:
Approaches to Forecasting :
Corporate
financial decisions include exchange rate forecasts as one of the most
important inputs. They have several usages such as making investment decisions,
hedging decisions and financing decisions. The speculative businesses in the
foreign exchange market are also benefitted by forecasts. There are a number of
models which offer explanation about the different factors that are influencing
exchange rates and they are also used for forecasting or predicting the
exchange rates of
Q.3
A depository receipt is a financial instrument whereby investors in one country
can
buy,
hold or sell the securities issued by companies in another country.
a)
ADR (American Depository Receipt) 5
b)
GDR (Global Depository Receipt) 5
Answer
:
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 interested in owning ADR as they can
diversify their investments across the globe. ADR falls within the Its half solved only
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DRIVE Spring 2019
SUBJECT
CODE &
NAME FIN402
TREASURY
MANAGEMENT
SET
1
Qus:1 Give the meaning of treasury
management. Explain the need for specialized handling of treasury and benefits
of treasury.
A) Treasury management
B) Need for specialized handling of
treasury
C) Benefits of treasury
Answer:
Explanation of 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. Figure
below depicts the varied aspects of treasury
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Qus:2 Explain
foreign exchange market. Write about all the types of foreign exchange
markets. Explain
the participants in foreign exchange markets.
A) Foreign
exchange markets
B) Types of
foreign exchange markets
C) Participants
in foreign exchange markets
Answer:
Explanation of
foreign exchange markets:
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 utilisation.
Explanation of
types of foreign exchange markets:
Figure
below depicts the types of foreign exchange
Qus:3 Write an overview of risk
mitigation. Explain the processes of risk containment.
Write about the tools available for
managing risks.
A) Risk mitigation
B) Basic steps in a typical risk
containment process
C) Tools available for managing
risks
Answer:
Explanation of risk
mitigation:
Risk
mitigation is important that an organisation is not only aware of the risks
before it impacts their bottom line, but has well-laid action plans to meet the
risks and mitigate its adverse impact. The overall responsibility for risk
management lies with the top management and the board of directors of the
enterprise.
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
SET
2
Qus: 1 What is
Interest Rate Risk Management (IRRM)? Write the components and features
of IRRM. Explain
the macro and micro factors affecting interest rate.
A) IRRM
B) Components
and features of IRRM
C) Factors
affecting interest rate(Macro and Micro)
Answer:
Explanation of
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
·
Explanation of
components and features of IRRM:
Components
of IRRM
Qus: 2 Explain
the contents of working capital. Write down the need for working capital.
A) Contents of
working capital
B) Need for
working capital
Answer:
Explanation of
contents of working capital:
Working capital is the
money invested in the working assets of a firm. Working capital comprises the
working assets of a firm.
·
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.
·
Payments
in advance
Qus: 3 Explain
the concepts and benefits of integrated treasury. Explain the advantages and
disadvantages of
operating treasury as a Profit Center.
A) Concepts and
benefits of integrated treasury
B) Advantages
and disadvantages of operating treasury
Answer:
Explanation of concepts
and benefits of integrated treasury:
The
concept of integrated treasury works on the principle that Treasury canes a
single unifying force of a company’s activities in the money market, capital
market and fore 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.
The
Indian rupee is freely convertible on current account and partially convertible
on capital account. This has made it possible to take a combined approach to a
treasury issue.
The
major functions of integrated treasury are as follows:
·
Ensuring
liquidity reserve
·
Deploying
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PROGRAM
Master of Business Administration –
MBA
IV
SUBJECT CODE & NAME
FIN403
Merchant Banking and financial
Services
SET 1
Qus:1
Explain Application Supported by Blocked Amount (ASBA). What is the
Procedure
of Applying in IPO through ASBA?
ASBA.
Procedure
of Applying in IPO through ASBA.
Answer: Application Supported by Blocked Amount (ASBA) is an
application containing an authorization to block the application money in the
bank account, for subscribing to an issue. If an investor is applying through
ASBA, his application money shall be debited from the bank account only if
his/her application is selected for allotment after the basis of allotment is
finalized, or the issue is withdrawn/failed.
SEBI has been specifying the
investors who can apply through ASBA. In public issues w.e.f. May 1, 2010, all
the investors can apply through ASBA. In rights issues, all shareholders of the
company as on record date
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Qus:2
Write short notes on Foreign Direct Investment (FDI) and Depository Receipt.
Foreign
Direct Investment (FDI)
Depository
Receipt
Answer: Foreign Direct Investment (FDI)
Foreign Direct Investment (FDI) is
an integral part of an open and effective international economic system and a
major catalyst to development. According to the International Monetary Fund
(IMF) and Organization for Economic Co-operation and Development (OECD)
definitions, direct investment reflects the aim of obtaining a lasting interest
by a resident entity of one economy (direct investor) in an enterprise that is
resident in another economy the direct investment enterprise). The ‘lasting
interest’ implies the existence of a long term relationship between the direct
investor and the direct investment enterprise and a significant degree of
influence on the management of the latter. Direct investment involves both the
initial transaction establishing the relationship between the investor and the
enterprise.
Role
of foreign investment
FDI plays a vital role in
Qus:3
What do you mean by a Depository? What are the functions
performed by a
Depository?
Depository.
Functions
performed by a Depository.
Answer: 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 creation of the ADR/GDR
SET 2
Qus:1
Explain the concept of Hire Purchase? Give the difference between Hire Purchase
and
Leasing.
Hire
Purchase.
Difference
between Hire Purchase and Leasing.
Answer: In a hire purchase system, the buyer acquires the property
by promising to pay in monthly, quarterly and half-yearly instalments. 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 instalment 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
instalment, the hire vendor has the right to reposses the goods. In this case,
the amount that is already paid so far by the hirer will be forfeited.
The hire purchase price of
Qus:2
Write short notes on Traditional theory of Portfolio
Management and Modern
theory
of Portfolio Management.
Portfolio
Management
Modern
theory of Portfolio Management
Answer: Portfolio theories give guidance in managing the portfolio.
Broadly speaking, the portfolio theories can be divided into two categories,
traditional theories or approach and modern theory or approach.
1.
Traditional theory or approach
The traditional theory says that the
investors should first decide the objective of the investment and then select
various securities which they want to include in the portfolio. As per this
approach, the entire financial plan of the investor is important and influences
investment decisions. The above conventional process of portfolio management is
termed as the traditional approach of portfolio management. First, the
objectives are set after analysis of the various constraints of the investors.
After that, formulation and implementation of the investment strategy of the
investor and selection of various types of securities with their weights are
performed to form a portfolio.
2.
Modern theory or approach
The modern portfolio theory
Qus:3
What do you mean by Venture Capital Fund? What are the
various features of a Venture Capital Fund?
Venture
Capital Fund.
Features
of Factoring Venture Capital Fund.
Answer: 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 and technically 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
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ASSIGNMENT
DRIVE SPRING 2019
PROGRAM MBA
SEMESTER IV
SUBJECT CODE & NAME FIN404-
Insurance & Risk Management
SET-I
Q.1
Criteria Marks Total Marks
1
What do you understand by risk management? List the steps involved in the risk
management process.
Risk
management 5
Steps
involved in the risk management process
5
Answer
:
Risk management : In the
financial world, risk management is the process of identification, analysis and
acceptance or mitigation of uncertainty in investment decisions. Essentially,
risk management occurs when an investor or fund manager analyzes and attempts
to quantify the potential for losses in an investment and then takes the
appropriate action (or inaction) given his investment objectives and risk
tolerance. Risk management occurs everywhere in the financial world. It occurs
when an investor buys low-risk government bonds over riskier corporate bonds,
when a fund manager hedges his currency exposure with currency derivatives, and
when a bank performs a credit check on an individual before issuing a personal
line of credit. Stockbrokers use financial instruments like options and
futures, and money managers use strategies like portfolio and investment
diversification to mitigate or effectively manage risk. Inadequate risk
management can result in severe consequences for companies, individuals, and
for the economy. For example, the subprime mortgage meltdown in 2007 that
helped trigger the Great Recession stemmed from poor risk-management decisions,
such as lenders who extended mortgages to individuals with poor credit,
investment firms who bought, packaged, and resold these mortgages, and funds
that invested excessively in the repackaged, Its half solved only
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Q.2 Define major components of insurance policy.
Components
of insurance policy. 10
Answer
;
Figuring out what insurance to buy
and from whom can be a significant undertaking on its own. And trying to
understand all the different parts of the insurance policy is a whole other
headache that may leave you wondering who writes these kinds of obtuse documents.
But it is important to know what you’re paying for, what your obligations are,
and what is and isn’t covered. The article below discusses some of the more
significant parts of an insurance policy so you have a better
Q.3 Write short notes on
a.
Insurance Regulatory and Development Authority (IRDA) 5
b.
Privatization of Insurance Industry
5
Insurance Regulatory and Development Authority (IRDA) :
The insurance industry of India is a
huge market with several major players. So it becomes important that there is
an authority overseeing the industry. And this is where the Insurance
Regulatory and Development Authority of India (IRDAI) comes in. Let us learn
more about them. The IRDAI is an independent and autonomous statutory body. The
IRDAI was constituted under the Insurance Regulatory and Development Authority
Act which was passed in 1999. The m
SET-II
Q.1 Explain Wagering contract. Differentiate
between Wagering and Insurance.
Wagering contract. 4
Difference
between Wagering and Insurance.
6
Answer :
Wagering contract :
Wagering
contract is formulated in the nature of a wager. Such contracts include a range
of common forms of applicable commercial contracts, e.g., contracts of
insurance, contracts dealing in futures, options, etc. The statutes against
gambling and betting have made many other wagering contracts illegal and
wagering in various cases is termed as a criminal offence. When we talk about
contracts we come across various types and kinds of contracts such as
Quasi-contracts,
Q.2 Elaborate Savings and Investment Aspect of
Life Insurance.
A
Savings Aspect of Life Insurance 5
Investment
Aspect of Life Insurance 5
Answer
:
Savings Aspect of Life Insurance :
Conceptually,
all life insurance policy cash values can be derived in the same way and all
evolve for the same basic reason – prefunding of future benefit payments plus
expenses. As a practical matter, however, policies are usually viewed in
different ways. In traditional forms of life insurance, the savings element is
considered a by-product of the level-premium payment method. Under this,
premium is not divisible into risk and saving elements. With universal life and
some other newer policy forms, the savings element is often considered as a
more independent
Q.3 Explain the concept of Reinsurance also discuss
various benefits of Reinsurance
Concept
of Reinsurance 5
Benefits
of Reinsurance 5
Answer
:
Concept of Reinsurance :
It
is helpful to have some prior understanding of the termi-nology used in the
domain of reinsurance.
(i) Reinsurer
Reinsurer
is an insurance company with which another insurance company enters into a
reinsurance agreement which details the conditions upon which the reinsurer would pay a share of the
claims incurred by the reinsurance-seeking company. The reinsurer is paid a
‘reinsurance premium’ by the reinsuranceseeking company, which issues insurance
policies to its own policyholders.
(ii) Ceding office
It
refers to the insurance company seeking reinsurance from another insurance
company or the reinsure
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