CONFIDENTIAL BAIDEC 2018/FIN542/620 UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION COURSE INTERNATIONAL FINANCIAL MANAGEMENT COURSE CODE FINS42/620 EXAMINATION DECEMBER 2018 TIME : 3HOURS INSTRUCTIONS TO CANDIDATES 4. This question paper consists of five (5) questions. 2. Answer ALL questions in the Answer Booklet. Start each answer on a new page. 3. Do not bring any material into the examination room unless permission is given by the invigilator. 4. Please check to make sure that this examination pack consists of i) _ the Question Paper ii) an Answer Booklet - provided by the Faculty 5. Answer ALL questions in English DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO This examination paper consists of 5 printed pages (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL, 2 BAIDEC 2018/FIN542/620 QUESTION 1 a) _ Discuss the possible reasons for growth in international business. (6 marks) b) Explain, by providing examples, any two main components of the current account in a country’s Balance of Payment (BOP). (4 marks) ©) Assume the following information: Spot rate of 100 Indonesian Rupiah = RM0.0385 / 455 180-day forward rate of 100 Indonesian Rupiah = RM0.0280 / 350 180-day Rupiah interest rate = 8 percent 180-day Ringgit interest rate = 6 percent Given the above information, is covered interest arbitrage (CIA) worthwhile for an investor? Explain your answer and show the CIA profit, if the investor can borrow IDR200milion or RM2 million to start with. (10 marks) QUESTION 2 @) Based on the theory of purchasing power parity (PPP), explain the general forecast of the values of currencies in countries with low inflation. (3 marks) b) As a currency trader, you take note of the following foreign exchange rates and interest rates quotes: Per unit of British Pound Per unit of Euro Dollar (GBP) (EUR) Spot rate RM5.3030 / 55 RM4.7100 / 35 KL London Frankfurt 6-month interest rate 6 percent 5 percent 6.5 percent i) Calculate the 6-month forward rates in MYR per unit of GBP and per unit of EUR respectively. (4 marks) ii) Compute the spot bid-ask percentage spread in MYR per unit of GBP and per unit of EUR respectively. (2 marks) iii) Compute the spot and 6-month rate in EUR per unit of GBP. (4 marks) (© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL,CONFIDENTIAL, 3 BADEC 2018/FIN542/620 iv) How much MYR would you receive now if you exchange with EURS,000? (3 marks) Vv) Compute the annualized forward percentage for GBP and EUR. (4 marks) QUESTION 3 a) Why do companies, particularly multinational companies (MNCs) need to forecast for the exchange rates movement? (4 marks) b) Your company, BaFIN Tech Bhd will need USD300,000 in 90 days. It wishes to hedge this payables position. Assume the following information is available: ‘90-day Malaysian interest rate 4 percent 90-day U.S interest rate 3 percent Spot rate of USD RM4.0720/60 90-day forward rate of USD RM4.0750/85 i) Determine the hedged value if the company uses money market hedge (6 marks) Determine the hedged value if the company uses forward hedge (3 marks) iii) Based on your answers in i) and ii), which would be a better hedging method? State your reason. (2 marks) ©) You saw that your favourite football jersey is now available online and priced at RM215. However, your good friend who is currently studying in London, state that the price of the same jersey is GBP45 over there. Meanwhile, your uncle who is working in Singapore informed that the jersey price in Singapore is SGD6S. If the current exchange rate of the British Pound (GBP) and Singapore Dollar (SGD) is RMS5.3070 and RM2.9810 respectively, is it worth it to ask your friend or your uncle to buy the jersey? Justify your answer. (5 marks) © Hak Cipta Universiti Teknologi MARA CONFIDENTIAL