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 ASSIGNMENT SOLUTION GUIDE (2020-2021)

IBO-06: INTERNATIONAL BUSINESS

FINANCE

Disclaimer/Special Note: These are just the sample of the Answers/Solutions to some of the Questions
given in the Assignments. These Sample Answers/Solutions are prepared by Private
Teacher/Tutors/Authors for the help and guidance of the student to get an idea of how he/she can
answer the Questions given the Assignments. We do not claim 100% accuracy of these sample
answers as these are based on the knowledge and capability of Private Teacher/Tutor. Sample
answers may be seen as the Guide/Help for the reference to prepare the answers of the Questions
given in the assignment. As these solutions and answers are prepared by the private teacher/tutor so
the chances of error or mistake cannot be denied. Any Omission or Error is highly regretted though
every care has been taken while preparing these Sample Answers/Solutions. Please consult your own
Teacher/Tutor before you prepare a Particular Answer and for up-to-date and exact information, data
and solution. Student should must read and refer the official study material provided by the
university.

Attemp all the question.

Q1. Define Balance of Payments. Explain the inter-relationship between Current

Account, Capital Account and Reserve Account with examples.
Ans.
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The BOP for United States international transactions is divided into the current account and the
capital account. The current account consists of goods, services, and investment earnings.
The capital account consists of capital transfers and the acquisition and disposal of real and
intangible assets, such as real estate or patents. A subdivision of the capital account, the financial
account records transfers of financial capital and direct investments. The BOP is published by
the BEA.
The credits and debits of some transactions are recorded in both the current and the capital account,
while others are only recorded in 1 account. For instance, the credit and debit associated with
purchasing a foreign bond is recorded only in the financial account while the importation of goods is
recorded in both accounts.
The official reserves account, which is part of the financial account, is the foreign currency held
by central bank, and is used to pay balance-of-payment deficits. Each account is further divided into
sub-accounts.

Q2.
a. What is foreign exchange market? Explain its significance and the functions of
participants.
Ans.

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Functions:

5
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b. What is political risk? How do international firms manage political risk arising in the
host countries?
Ans.

7
Q3. What is translation exposure? How is it different from transaction exposure?
Discuss the various techniques of managing translation exposure.
Ans.

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Q4. What are the benefits of project export? What are the risk included in project
exports? Discuss the various kinds of bonds/guarantees in project export.
Ans.

11
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Q5. Define yield curve. How is it constructed? How does interest rate risk influence
yield curve. Explain.
Ans.

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