INTERNATIONAL FM – FINANCIAL MANAGEMENT ASSIGNMENT ANSWERS

(PREPARED BY ARJUN IYER – STUDENT DPU)

1) The most commonly accepted goal of the MNC is: (Answer in Swayam. Please note,
as per the concept the correct answer would be – To maximize shareholders wealth)

A) To maximize revenues
B) To maximize shareholder wealth
C) To maximize profitability of the firm
D) To maximize earnings

2) Several constraints confront the MNC in its attempt to maximize shareholder

wealth. Which of the following is probably not a constraint? (Answer in Swayam.
Competition is the core essence of business as it is foundation for improvement in
overall activities in an MNC)

A) Competitive
B) Ethical
C) Regulatory
D) Environmental
 INTERNATIONAL FM – FINANCIAL MANAGEMENT ASSIGNMENT ANSWERS
(PREPARED BY ARJUN IYER – STUDENT DPU)

3) Which method of international business obligates a firm to provide a specialized

sales or service strategy, support assistance, and possibly an initial investment in
the entity in exchange for periodic fees? (The Correct Answer is Franchising. Refer
definition in 1st chapter, but in Swayam the question & answer is wrong. As the
question is repeated & answer given as Joint Venture.)

A) Joint Venture
B) New Foreign Subsidiary
C) Licensing
D) Franchising

4) Multinational firms face exposure to many different types of international risk.

Which of the following is not a type of exposure mentioned in the text? (Answer in
Page No.10 – MNC face risks such as Political Risks, Diversifiable Risks & Exchange
Rate Risks)

A) Diversifiable risk
B) Political risk
C) Foreign Economies
D) Exchange return movements

5) The market where the dealing in currencies takes place is called as. (Refer below
Swayam ss)

A) Money Market
B) Forex Market
C) Capital Market
D) Commodity Market
 INTERNATIONAL FM – FINANCIAL MANAGEMENT ASSIGNMENT ANSWERS
(PREPARED BY ARJUN IYER – STUDENT DPU)

6) International financial system affected by (Other factors are Inflation, National

Income & Exchange Rates)

A) Government Policies
B) Political Issues
C) Financial Issue
D) Trade Issues

7) International Money Market is for about (Country governments may also need to borrow
short-term funds to finance their budget deficits. This is done through International Money
Market)
A) 2 years
B) 3 years
C) 4 years
D) 1 year

8) Not aim of international capital market is (Trade deficit cannot be reduced by preserving
hard currencies, which is not the role of capital market)
A) preserving hard currencies to finance trade deficits
B) reducing cost to money borrowers
C) reducing investor risk
D) expanding money supply for borrowers
 INTERNATIONAL FM – FINANCIAL MANAGEMENT ASSIGNMENT ANSWERS
(PREPARED BY ARJUN IYER – STUDENT DPU)

9) International capital market (Answer in Swayam)

A) limits available set of lending opportunities
B) increases overall portfolio risk for investors
C) allows investors to reduce risk by holding international securities whose price move
independently
D) is easily accessible to everyone

10) The accounting statement that summarizes all the economic transactions between
a country's residents and foreign residents is called the balance of (Answer in Swayam)
A) merchandise trade
B) current account
C) official account
D) payments
 INTERNATIONAL FM – FINANCIAL MANAGEMENT ASSIGNMENT ANSWERS
(PREPARED BY ARJUN IYER – STUDENT DPU)

11) As the real value of the yen rises, the balance on Japan's current account is likely to
(Refer below SS)
A) stay the same
B) improves
C) deteriorate (EXPLANATION: As Inflation rate increases, the value of goods &
services also increases in Japan, this will deteriorate Japan Current Account, higher
prices can reduce demand for Japanese exports and potentially increase the value of
imports, contributing to a trade imbalance)
D) cannot determine

12) If a country imposes tariffs on imported goods, then that country's balance of
payments will very likely (Refer below SS & explanation)

A) improve (EXPLANATION: There are lots of benefits a country enjoys when they impose
tariffs. A country that imposes a tariff on imported goods experiences the benefit of increased
revenue due to taxes it is collecting from each product that is entering the market. Also, it will
help in reduction of trade deficit in the country)

B) deteriorate
C) stay the same
D) cannot determine
 INTERNATIONAL FM – FINANCIAL MANAGEMENT ASSIGNMENT ANSWERS
(PREPARED BY ARJUN IYER – STUDENT DPU)

13) Holding other things constant, an increase in the current account deficit of a country's
balance of payments will most likely_______ (Refer below SS)
A) weaken the value of its currency (EXPLANATION: An increase in current account deficit
will weaken the value of currency as it is depreciation of country currency)
B) increase the value of its currency
C) not affect the value of its currency
D) keeps it in balance

14) Interest and dividend incomes show up in the (Refer below screenshot & table
provided in textbook)
A) merchandise account
B) reserves and related items
C) capital account
D) current account
 INTERNATIONAL FM – FINANCIAL MANAGEMENT ASSIGNMENT ANSWERS
(PREPARED BY ARJUN IYER – STUDENT DPU)

15) The balance of payments identifies states that the combined balance of current
account, capital account, financial account, net errors and omissions, and reserves and
related items must be (The Balance of Payment Account must Balance as if there is
difference in it, it is Deficit or Surplus which is required to be adjusted)
A) greater than one (1)
B) less than one (1)
C) equal to zero (0)
D) between -1 and +1

16) For balance of payments statistics, visible trade refers to trade in (Answer in
Swayam)
A) goods only
B) service only
C) goods/commodities
D) gold
 INTERNATIONAL FM – FINANCIAL MANAGEMENT ASSIGNMENT ANSWERS
(PREPARED BY ARJUN IYER – STUDENT DPU)

17) Reserves are held in the following forms, except (Answer in Page No.43 – Official
Reserve Account – Reserves comprises of monetary gold, SDR allocations & foreign
currency assets)
A) Foreign Currency
B) Gold
C) SDR
D) Silver

18) Following are the main factors which affect BOP. (Changes in exchange rates can
influence exports, imports, and the overall BOP.)
A) Cost
B) Exchange Rate
C) Price
D) Income

19) ____ can authorize a person/company to deal in foreign exchange. (RBI authorizes
any person on application to deal in foreign exchange)
A) SEBI
B) RBI
C) IRDA
D) Parliament
 INTERNATIONAL FM – FINANCIAL MANAGEMENT ASSIGNMENT ANSWERS
(PREPARED BY ARJUN IYER – STUDENT DPU)

20) The role of the MNC financial manager has expanded in recent years to include ___.
(Refer below SS. Other activities are primary activities of financial managers. Corporate
strategy is a top management decision making process; thus, the financial manager has
expanded his role in this strategy even after being Middle level managers)
A) corporate strategy
B) financial planning & control
C) subsidiary performance
D) regulatory risks

21) Convertibility of rupee refers to its convertibility into a ______ as desired by its holder.
(Refer below SS & Unit 5: Introduction paragraph)
A) foreign currency
B) local currency
C) Bank notes
D) Demand Draft
 INTERNATIONAL FM – FINANCIAL MANAGEMENT ASSIGNMENT ANSWERS
(PREPARED BY ARJUN IYER – STUDENT DPU)

22) To reduce its trade deficit, a country should do all of the following but ____. (Refer
below SS. Trade Deficit is a situation where, the value of imports is more than value of
exports. This is because of excess money supply with the common public, so to reduce trade
deficit we need to reduce money supply & not increase it)
A) deflate the economy
B) devalue the currency
C) adapt foreign exchange controls
D) increases money supply

23) All of the following statements concerning a country’s balance of payments are true
except ___. (Refer below SS. It records all accounts & not only business transactions)
A) it is commonly defined as the record of transactions between the country’s residents
and foreign residents over a specific period.
B) the recorded transactions include exports and imports of goods and services.
C) it records only the transactions of business firms.
D) it is used to analyse a country’s competitive position.
 INTERNATIONAL FM – FINANCIAL MANAGEMENT ASSIGNMENT ANSWERS
(PREPARED BY ARJUN IYER – STUDENT DPU)

24) The "open interest" in a currency futures quotation table refers to the _______. (Refer
below SS)
A) total number of contracts traded
B) total number of outstanding contracts which are not offset by opposing transactions
C) total number of interested parties
D) total number of contracts traded in a year

25) A decentralized management style is more likely to result in higher agency costs
because the subsidiary managers may make decisions that do not focus on maximizing
the value of the entire MNC. (Decentralized management call for more managers to take
responsibility for team members and the overall organization increasing agency cost —
which means they have to be paid more.)
A) True
B) False

26) Using international trade as a method of conducting international business is a

relatively bold approach that can be used by firms to penetrate markets. (International
trade is a relatively conservative approach that can be used by firms to penetrate markets by
exporting or to obtain supplies at a low cost by importing)
A) True
B) False
 INTERNATIONAL FM – FINANCIAL MANAGEMENT ASSIGNMENT ANSWERS
(PREPARED BY ARJUN IYER – STUDENT DPU)

27) The Single European Act of 1987 removed several cross-border barriers among
European countries. It also exposed firms to additional competition. (Single European
Act to remove trade barriers between European borders since exchange rate risk is an implicit
trade barrier)
A) True
B) False

28) Political risk represents political actions taken by the host government or the public
that affect an MNC's cash flows. (Caused due to political parties & their ideologies for host
nations)
A) True
B) False

29) The so-called Asian crisis lingered in 1998 and adversely affected numerous U.S.-
based MNCs that conducted business in these countries. (The Asian Crises had an impact
on US based MNC carrying out activities in Asia)
A) True
B) False

30) Licensing is a venture that is jointly owned and operated by two or more firms.
(Answer in Page No.09 – 1st Para)
A) True
B) False
 INTERNATIONAL FM – FINANCIAL MANAGEMENT ASSIGNMENT ANSWERS
(PREPARED BY ARJUN IYER – STUDENT DPU)

DISCLAIMER:
CASE BASED ASSIGNMENT ANSWERS ARE MARKED AS PER MY UNDERSTANDING. SO
KINDLY SOLVE THE ANSWERS FROM YOUR END & MARK. CHANCES OF HAVING
DIFFERENT ANSWERS IS POSSIBLE.

1) India is one of the poorest countries in the world. Considered a socialist

government, government leaders in India have a great deal of control over the
economy. As such, most nationwide financial decisions that affect the
markets are made by the Reserve Bank of India (RBI). Any growth in the
economy is dominated by agriculture, manufacturing, and services. However,
RBI drives and controls the economy. India has made several attempts to
implement interest rate futures as a derivative to help investors hedge their
investments. Hedging is common in the United States, but has historically
struggled as an investment tool in India. Hedging is a way to use a derivative
instrument as an insurance policy against substantial fluctuations in the
financial market. An interest rate future is a way to hedge, and someone with
experience in futures can be very successful in using it as a mechanism to
guard against significant losses in the stock market. An interest rate future is
a derivative that is traded on the stock exchange to help counter investment
losses from interest rate fluctuations. This type of future is based on a
standard contract that is struck between two parties for a future sale and can
be reversed with any other publicly traded entity. For example, in the United
States, an investor will purchase bonds for a specific price that was based on
a predetermined interest rate. There is a risk that the market interest rates will
increase, especially in India, which reduces the value of the bond. An investor
will hedge the risk by betting against these losses. Interest rate futures were
introduced on government bonds and in the stock market in India in 2003,
2009, and 2011. These futures could be used to manage the risks associated
with investing in the stock market. Risk comes from the fluctuation of interest
rates, primarily from legislative, political, and environmental impacts. For
example, if the United States places trade tariffs on India, it will affect the
country's economy via interest rates. In 2003, the demand for this type of
derivative was high because India's economy was deregulated, but RBI and
the interest rate began to swing violently from one extreme to another. To
stabilize the economy, the markets needed some type of derivative to
counterbalance this volatility. RBI then tried interest rate futures. However, RBI
forbid banks from trading in interest rate futures, and this manoeuvre
prevented the futures from being flexible enough in their liquidity to be
successful. Banks needed to be involved, and investors moved away from
hedging. India tried again in 2009 to implement hedging to increase
 INTERNATIONAL FM – FINANCIAL MANAGEMENT ASSIGNMENT ANSWERS
(PREPARED BY ARJUN IYER – STUDENT DPU)

investment in the stock market and stimulate growth. A committee involving

members from RBI and the Securities Exchange Board of India (Sebi) made
recommendations that removed the restrictions, seen as unnecessary for
investors. However, a convoluted pricing structure still existed for pricing
futures. Interest rate futures were, once again, a failure in India because the
majority of the bonds on which they were based would end up being
worthless. India decided to try once again to use futures in 2011 to stimulate
the country's growth. RBI and Sebi went back to the drawing board and made
recommendations for a third try at interest rate futures in India. This
endeavour began in 2011, and investors have seen great success in hedging
their investments. This time the futures are based off of 91-day treasury bills,
are cash-backed, don't require physical delivery, and are priced by auctions
that cannot be manipulated. Treasury bills are instruments within the money
market that are issued by the government at a discount and redeemed at face
value. This seems to be working for India in that trading continues to be
fierce.

ANSWERS:

2) Identify which of the following sector helps in the growth of the economy. (REFER
3RD LINE IN PARA)

a) Agriculture
b) automobile
c) Manufacturing
d) Tourism

3) Select the year in which Interest rate futures were introduced. (REFER PARA 3RD
LINE)

a) 2009
b) 2011
c) 2018
d) 2022

4) Choose the reasons for risk which comes from the fluctuations of interest rates.
(REFER PARA 14TH LINE)

a) Legislative impact
b) Social impact
c) Foreign risk impact
d) Environmental impact
 INTERNATIONAL FM – FINANCIAL MANAGEMENT ASSIGNMENT ANSWERS
(PREPARED BY ARJUN IYER – STUDENT DPU)

5) Identify the members which included in committee for working on hedging.:

(REFER PARA 20TH LINE)

a) Members from RBI

b) Members from SEBI
c) Members from WTO
d) Members from BSE

6) Which of the point given below the RBI & SEBI Worked for? (REFER PARA 12TH
LINE)

a) Deflation
b) Appreciation
c) Interest Rates
d) Hedging

THANKING-YOU

CREATED BY ARJUN IYER:

TO SUPPORT ALL DPU MBA FINANCE STUDENTS.