Explain purchasing power parity
International finance Management 1
Q1. ‘‘Centralized cash management is a double – edged sword for international working capital management’’ – Discuss.
Q2. ‘‘Balance of payments always balances’’ – Comment.
Q3. How does the international Monitory fund raise the resources ? What are special drawing rights? Breifly explain the funding facilities provided by IMF to its member countries
Q4. How does international financial system differ from domestic financial system?
Q5. What is infra-corporate transfer of fund? Explain the variable that influence intra corporate transfer of funds.
Q6. Explain purchasing power parity and reason for its deviation. Also discuss its applications.
in the emerging foreign exchange markets.
Q8. Consider the following data Exchange Rate $ Interest Rate £ Interest Rate Spot 1 $ 1,5753/ £ – –
Q9. Find out the arbitrage possibilities for various periods.
Rate Spot 1 $ 1,5753/ £ – –
1 month $ 1, 5623/ £ 3% p.a 8.5% p.a
3 months $ 1, 5577/ £ 3.5% p.a 7.5% p.a
6 months $ 1.5536/ £ 3.5% p.a 7% p.a
Q10. Show how interest rate parity will be restored as a result of arbitrage activities.
Q11. You are setting up a project in USA. The estimated NFV is $12 million. Your finance officer started in the report that he has not accounted for foreign exchange risk. He felt that with such a large NPV, the project should be accepted since even a risk adjusted NPV would likely be positive. You have the final decision as to whether to accept or reject the project. What is you decision? Calculate the following rates into outright rates: ii) Indicate their spreads
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