Student Declaration

I________Muhammad Rizwan_____ Registration No._17-arid-5428__, hereby declare that

by attempting the paper for the course ____ International Finance ______, I will not be

involved in any kind of cheating/copying/plagiarizing in solving the short questions based

paper of Mid Term Examination Spring2021. I take full responsibility of my conduct. If I

found involved in any kind of such activity of cheating/copying/plagiarizing, then Institute

reserves the right to take any disciplinary action against me.

Student Signature
 Mid Exam / Spring 2021 (Paper Duration 24 hours)
(Online Assignment Based Question Paper)

Course No.: MGT-638 Course Title: International Finance

Total Marks: 18 Date of Exams:` 28-4-2021
Degree: BBA Semester: 8th Section: A
Marks
Q.No. 1 2 3 4 5 6 7 8 9 10 Obtained/
TotalMarks
Marks
Obtaine
d
Obtained Marks in Words:
Name of the Teacher: Marina Nazir
Who taught the course:Signature of Teacher / Examiner:

To be filled by Student

Registration No.: 17-arid-5428 Name: Muhammad Rizwan

 Mid Exam / Spring 2021 (Paper Duration 24 hours)
(Online Assignment Based Question Paper)

Course No.: MGT-638 Course Title: International Finance

Total Marks: 18 Date of Exams: 28-4-2021
Degree: BBA Semester: 8th Section: A
Marks
Q.No. 1 2 3 4 5 6 7 8 9 10 Obtained/
TotalMarks
Marks
Obtaine
d
Obtained Marks in Words:
Name of the Teacher: Marina Nazir
Who taught the course: Signature of Teacher / Examiner:

To be filled by Student

Registration No.: 17-arid-5428 Name: Muhammad Rizwan

(THEORETICAL/PRACTICAL EXAMINATION)

Answer the following questions

Q.No.1. (Marks=1*6)
Please relate the following terms with the valuation of MNC’s
I. Arbitrage
II. Leverage
III. Cost of capital
IV. Foreign exchange markets
V. Fixed and floating exchange rates
VI. Put and call options
Answer:
All terms are included in this answer that mentioned by number in sequence:-
Q.No.2. (Marks2+2=4)
Nowadays Pakistan is passing through a lot of economic problems in which inflation is a more
pronouncing issue among the public. According to inflation theory;
I. how would a relatively high inflation rate in Pakistan affect the current account other things
being equal?
II. Is a negative current account harmful to a country? And is it also harmful to the Pakistani
economy too? Give some logical reasons.
Answer:

Section 1:-
Section 2:-

Q.No.3. (Marks2+3+3=8)
Blades, a U.S. manufacturer of rollerblades, has chosen Thailand as its primary export target for
Speedos, Blades’ primary product. Moreover, Blades’ primary customer in Thailand, Entertainment
Products, has committed itself to purchase 180,000 Speedos annually for the next 3 years at a fixed
price denominated in baht, Thailand’s currency. Because of quality and cost considerations, Blades
also imports some of the rubber and plastic components needed to manufacture Speedos from
Thailand. Lately, Thailand has experienced weak economic growth and political uncertainty. As
investors lost confidence in the Thai baht because of the political uncertainty, they withdrew their
funds from the country. This resulted in an excess supply of baht for sale over the demand for baht
in the foreign exchange market, which put downward pressure on the baht’s value. As foreign
investors continued to withdraw their funds from Thailand, the baht’s value continued to
deteriorate. Since Blades has net cash flows in baht resulting from its exports to Thailand, a
deterioration in the baht’s value will affect the company negatively. Ben Holt, Blades’ CFO, would
like to ensure that the spot and forward rates Blades’ bank has quoted are reasonable. If the
exchange rate quotes are reasonable, then arbitrage will not be possible. If the quotations are not
appropriate, however, arbitrage may be possible. Under these conditions, Holt would like Blades to
use some form of arbitrage to take advantage of possible mispricing in the foreign exchange market.
Although Blades is not an arbitrageur, Holt believes that arbitrage opportunities could offset the
negative impact resulting from the baht’s depreciation, which would otherwise seriously affect
Blades’ profit margins.
1) Identify the different arbitrage opportunities for Bladesand argue the best one.
2) Holt has obtained spot rate quotations from two banks in Thailand: Minzu Bank and Sobat
Bank, both located in Bangkok. The bid and ask prices of Thai baht for each bank are
displayed in the table below:
MINZU BANK SOBAT BANK
Bid $.0224 $.0228
Ask $.0227 $.0229
Determine the type of arbitrage and whether the foreign exchange quotations are appropriate. If
they are not appropriate, determine the profit you could generate by withdrawing $100,000 from
Blades’ checking account and engaging in arbitrage before the rates are adjusted.
3. Ben Holt has obtained several forward contract quotations for the Thai baht to determine
whether covered interest arbitrage may be possible. He was quoted a forward rate of $.0225 per
Thai baht for a 90-day forward contract. The current spot rate is $.0227. Ninety-day interest rates
available to Blades in the United States are 2 percent, while 90-day interest rates in Thailand are
3.75 percent (these rates are not annualized). Holt is aware that covered interest arbitrage, unlike
locational and triangular arbitrage, requires an investment of funds. Thus, he would like to be able to
estimate the dollar profit resulting from arbitrage over and above the dollar amount available on a
90-day U.S. deposit. Determine whether the forward rate is priced appropriately.
Answer:
Section 1 & 2:-
Section 3:-
Conclusion:-