COURSE NO.

606

INTRODUCTION

1 Define the Term ‘Multinational Corporation’.

2 Explain in brief the various types of multinational company.
3 Explain in brief the common methods used to conduct international business.
4 Discuss in brief the reasons for internationalization of business.
5 What factors cause some firms to become more internationalization than others?
6 Explain the silent feature of Breton Wood Agreement.
7 Explain the pros and cons of European Monetary System.
8 What is International Monetary System?
9 Explain in brief the various theories of international business.

FOREIGN EXCHANGE MARKET

1 Define the term ‘Foreign Exchange Market’. Who is the participant in the foreign
exchange market?
2 Define the following term:
a. Direct quote.
b. Indirect quote. c. Bid quote & ask quote.
3 With reference to inter bank quotations, what is the difference between American
terms and European terms?
4 What is the geographical location of the foreign exchange market?
5 What are the two main types of trading systems for foreign exchange?
6 How are foreign exchange markets connected for trading activities?
What is cross rate? How it is determine?

7 On your graduation celebratory trip, you are leaving Copenhagen, Denmark, for St.
Petersburg, Russia. Denmark’s currency the crone. You leave Copenhagen with
10,000 Danish kroner still in your wallet Wanting exchange of these for Russian
rubles, you obtain the following quotes:
Dkr 8.5515 / $ R 30.962 / $
i. What is the Danish krone / Russian ruble cross rate?
ii. How many rubles will you obtain for your kroner?

DETERMINATION OF EXCHANGE RATE

1 What an exchange rate is?

How equilibrium spot exchange rate is determined?
2 How Exchange Rates are set? How Exchange Rates Change
3 Explain in brief the factor that affect exchange rate.
4 What are the five basic mechanisms for establishing exchange rates? How does
each work?
6 What kinds of impact we may observe, in international trade due to the change in
exchange rate?
The Impact of Exchange Rate Change
Point out the several ‘Currency Control Measures’
7 The $:DM cross rate is DM 1 = $ 0.35 and the DM : FF exchange rate is FF
1 = DM 0.31. What would be the FF : $ exchange rate?
8 For each of the following six scenarios, say whether the value of the Dollar will
 appreciate, depreciate or remain the same relative to the Japanese Yen
(i). The growth rate of national income is higher in the USA than in Japan.
(ii). Inflation is higher in the USA than in Japan.
(iii). Prices in Japan and USA are rising at the same rate.
(iv). Real interest rate are higher in the USA than in Japan.
(v). The USA imposes new restrictions on the ability of foreigners to buy
American companies and real state.
(vi). USA wage rise relative to Japanese wage, while American Productivity falls
behind Japanese Productivity.
9 In 1st January 2005 was a significant date in Yugoslavia. On that say Government
of Yugoslavia devalued Diner, settings new rate at 10.00
diners to the dollar, from 6.5 diners previously. Determine:
(i). By how much has the diner devalued against the dollars?
(ii). By how much has the dollars appreciated against Diners?

INTERNATIONAL CASH MANAGEMENT

1 Discuss in brief the key areas of international cash management.

2 Discuss in brief the key factors that influence international short-term financing
strategy.
3 Explain the objectives and options of international short-term financing.
4 Discuss in brief factors that are considered in determining international short-term
financing strategy?
5 What types of Option are available for international short-term Financing?
Explain.

MEASURING ECONOMIC AND POLITICAL RISK

1 Explain the economic and social factors that contribute to the general level of risk
for a country.
2 Write down the key indicator of country risk and indicators of economic health of
a country.
3 How we are able to measure the political stability of a country?
4 What are the key questions that a MNC should considered in assessing the degree
of political risk of a country?

INTERNAYTIONAL CAPITAL BUDGETING

1 Describe in brief the basic issues related with foreign investment analysis.
2 How can financing strategy be used to reduced foreign exchange risk?
3 “Capital budgeting for a foreign project uses the same theoretical framework as
domestic capital budgeting.”----- Explain.
4 Why should a foreign project be evaluated both from a project and parent view
point?
5 Mention the complexities of budgeting for a foreign project.
 Suppose that a new foreign investment requires $100 million in funds. Of this
total, $20 million will be provided by parent company funds, $25 million by
retained earnings in the subsidiary, and $55 million through the issue of new debt
by the subsidiary. The parent’s cost of equity equals 14%, and its after tax cost of
debt is 5%. The firm’s current debt ratio, which is considered to be optimal, is
0.03. However, this project has a higher systematic risk than the typical investment
undertaken by the firm, thereby requiring a rate of return of 16% on new parent
equity and 6% on new parent debt. Incremental tax on repatriated earnings is 8%.
The nominal local currency rate of interest is 20%. An anticipated average annual
devaluation of 7% and foreign tax rate is 40%.
(i). Calculate the project weighted average cost of capital.
(ii). Calculate the parent’s weighted average cost of capital.

PARITY CONDITION

1 Explain in brief the various theories of exchange rate.

2 What is Purchasing Power Parity (PPP)?
3 Explain in brief the two form of PPP theory.
4 What are some reasons for deviations from purchasing power parity?
5 What kinds of lesson we may learn from PPP?
6 Discuss in brief the pros and cons of Interest Rate Parity (IRP).
7 Compare and contrast between IRP, PPP & IFE
8 Under what circumstances purchasing power parity is applied?
9 Between 1980 and 1995, the ¥/$ exchange rate moved from ¥226.63/$ to ¥93.96.
During this same period, the consumer price index CPI) in Japan rose from 91.0 to
119.20 and the U.S CPI rose from 82.40 to 152.40.
(a). If PPP had held over this period, what would be the ¥/$ exchange
rate have been in 1995?
(b). What happened to the real value of the ¥ in term of $ during this
period?
10 What do you mean by interest rate parity? Suppose the interest rate on pounds
sterling is 15% in London, and the interest rate on a comparable dollar investment
in New York is 10%. The pound rate is $1.85 and the one-year forward rate is
$1.75.
(i). Calculate the 60 days forward discount for sterling.
(ii). Determine the covered interest yield, if any.
11 If the current U.S. price level is at 110 and the Switzerland price levels is at 105,
relative to base price levels of 100. The spot rate is SFr 1 = $ 0.48. According to
PPP what would be the SFr in three year.
12 The Argentine peso was fixed through a currency board at Ps 1.00/ $. In January
2004 the Argentine peso was floated. As of January 29, 2004 it had depreciated to
Ps 3.20 / $. During the one-year period Argentine‘s inflation was 20% on an
annualized basis. Inflation in the U.S. A was 2.2% annualized.
i. What should have been the exchange rate in January 2005 if
purchasing power parity held?
ii. By what percentage was the Argentine peso undervalued on an
annualized basis?

13 James Chang, a foreign exchange trader at J. P. Morgan chase, can invest $5

million or the foreign currency equivalent of the bank’s short-term funds in a
covered interest arbitrage with Denmark. He has the following quotes:
Spot exchange rate : DKr 7.500/$
Three month forward rate : DKr 7.5372/$
Three month dollar interest rate : 3% per year
 Three month Krone interest rate : 5% per year

Can James Chang Make a covered interest arbitrage?

FOREIGN EXCHANGE EXPOSURE

1 Explain how currency swaps can hedge foreign exchange operating.

2 What are the accounting advantages of currency swaps?
3 How can a MNE diversify its operating and financing exposures?
4 Define the term ‘Exposure & ‘Translation Exposure’.
5 What are the basic translation methods? How do they differ?
6 Discuss in brief the protective measures to guard against transaction exposure.

Additional for Banking Group

1. (a). Define the term Foreign Exchange (L. R. Chowdhury, P.2-9)

(b). Point out the fundamentals of foreign exchang
(c). Explain in brief the foreign exchange administration in Bangladesh.
[Flow chart from C. Jeevanandam, p. 22]
2. (a). What do you mean by the term exchange control?
(b). Point out the typical currency control measures. [Lecture Sheet]
3. Explain in brief the objectives of exchange control?
[C. Jeevanandam, p. 10 and L. R. Chowdhury, P. 222.]
4. Explain in details the methods of exchange control.
[C. Jeevanandam, p. 12 and L. R. Chowdhury, P. 223.]
5. Explain in brief the means and methods of international payments.
[L. R. Chowdhury, P.29 – 41 and sheet for financing in foreign trade]
6. Explain in brief the factors that influence on fluctuations in exchange rates.
(L. R. Chowdhury, P. 50 –53.)
7. Explain the theories of exchange rate determination prior to IMF. [L. R. Chowdhury, P. 55-62.]
8. Explain in brief the various tools for managing exchange risk. [C. Jeevanandam, p. 127-136.]
9. Point out the various types of documents and bills that are used in foreign trade.
[L. R. Chowdhury, P. 251and 284.]
10. Explain in brief the various financing techniques used in international trade. [Lecture Sheet]
11. Discuss the various forms of export financing available in Bangladesh. [Sheet]
12. Explain in brief the INCOTERMs 2000 with reference their group, meaning and
obligations. [L. R. Chowdhury, P. 603- 5.]