IINERNATIONAL FINANCE MANAGEMENT

K

karthik.

Karthik Vinnakota
You are required to find out the overall balance (BOP), showing clearly all the sub balances from the following data.
(a) UC corporation of the USA invests in India Rs 300000/- to modernize its Indian Subsidiary
(b) A tourist from Egypt buys souvenirs worth Rs 3000/- to carry with him
(c) He also pays hotel and travel bills of Rs 5000/- to Delhi Tourist Agency.
(d) The Indian Subsidiary of UC Corporation remits, as usual Rs 5000/- as dividends to its parent company in the USA
(e) This Indian Subsidiary of UC Corporation sells apart of its production in other Asian Countries for Rs 100000/-
(f) The Indian Subsidiary borrows a sum of Rs 200000/- from the German money market to resolve its urgent liquidity problem.
(g) An Indian Subsidiary of a French company borrows Rs 50000/- from the Indian Public to invest in its modernization Programme.
2. Prepare a BOP statement for France from the following data.
(a) France export goods worth FFrs 5000
(b) France import goods worth FFrs 4000
(c) Expenditure of Foreign tourists in France FFrs 2500
(d) France makes interest and dividend payments to foreigners FFrs 2000
(e) A French working in USA sends a cheque to his wife in Paris worth FFrs 500
(f) A Bangladeshi immigrant working in ?France remits money to his account in Dacca FFrs 1000
(g) France telecom invests in India FFrs4500
(h) IBM invets in France FFrs 2000
(i) A French resident buys a German Treasury Bond FFrs 300
(j) A Swiss resident buys a French Treasury Bond FFrs 5000
(k) France borrows FFrs 3800 for short term .



1. Find out the the possible 2 point arbitrage in spot Market.
NewYork: $ 1.9800 ? 10 per Pound and
London : $ 1.9700 ? 10 Per Pound
2. Find out the the possible 3 point arbitrage in spot Market
NewYork: $ 1.9810 per Pound
London : DM 3.1650 per Pound and
Frankfurt: $0.6250 Per DM
3. Find out the possible arbitrage in Forward Market
Can $ 1.317 Per US$(spot)
Can $ 1.2950 Per US$ (6Months Forward Market)
6 Months Interest rates:
Us$ - 10%
Can$ - 6%
4. Find out the possible arbitrage in Forward Market
Can $ 0.665 Per DM (spot)
Can $ 0.670Per DM (3Months Forward Market)
3 Months Interest rates:
DM - 7%
Can$ - 9%
 
whats all this man? Is it that we have to show the result here?
 
solution for 3point arbitrage

assume we have 1000$
as per frankfort market
1dm=0.6235$
? =1000$
gives 1600Dm
now asper londan market
1pound=3.1650DM
? =1600DM
gives 505.2pound
now as per newyork market
1pound=1.9810$
505.2pounds=?

we will get 1000.8012$
actuall we invested 1000$
now arbitrage is 1000.8012$-1000$=.8012$
 
arbitrage in Forward Market

in this case premium/discount and interest rate difference will play a major role
in this case forward rate<spot rate hence discount
step-1 find discount/premium
discount=(FW-SR)/SR*12/n?*100
so =(1.2950-1.317)1.317*12/6*100
=3.34%
step-2 find interest difference
=10%-6%
=4%
interest rate difference > discount
so barrow from low interest rate and invest in high interest rate
step-3 barrow 1000can$ at 6% for 6 months
1us$=1.317can$
? =1000can$
gives 759.30us$
step-4 invest in us$ for 10%
=759.30+{(759.30*(1+0.10)*6/12}
=1176.915us$ (amount u got for 6months)
step-5 now find interest for 1000can$ which u borrowed for 6months
=1000can$+{(1+0.06)*6/12}
=1530can$
step-6 convert 1176.915us$ into can$ as u have to find arbitrage
1us$=1.2950can$
1176.915us$=?
=1524.25can$
ARBITRAGE=1530CAN$-1524.25CA N$
=4.75CAN$(DISCOUNT)
 
karthik. said:
You are required to find out the overall balance (BOP), showing clearly all the sub balances from the following data.
(a) UC corporation of the USA invests in India Rs 300000/- to modernize its Indian Subsidiary
(b) A tourist from Egypt buys souvenirs worth Rs 3000/- to carry with him
(c) He also pays hotel and travel bills of Rs 5000/- to Delhi Tourist Agency.
(d) The Indian Subsidiary of UC Corporation remits, as usual Rs 5000/- as dividends to its parent company in the USA
(e) This Indian Subsidiary of UC Corporation sells apart of its production in other Asian Countries for Rs 100000/-
(f) The Indian Subsidiary borrows a sum of Rs 200000/- from the German money market to resolve its urgent liquidity problem.
(g) An Indian Subsidiary of a French company borrows Rs 50000/- from the Indian Public to invest in its modernization Programme.
2. Prepare a BOP statement for France from the following data.
(a) France export goods worth FFrs 5000
(b) France import goods worth FFrs 4000
(c) Expenditure of Foreign tourists in France FFrs 2500
(d) France makes interest and dividend payments to foreigners FFrs 2000
(e) A French working in USA sends a cheque to his wife in Paris worth FFrs 500
(f) A Bangladeshi immigrant working in ?France remits money to his account in Dacca FFrs 1000
(g) France telecom invests in India FFrs4500
(h) IBM invets in France FFrs 2000
(i) A French resident buys a German Treasury Bond FFrs 300
(j) A Swiss resident buys a French Treasury Bond FFrs 5000
(k) France borrows FFrs 3800 for short term .



1. Find out the the possible 2 point arbitrage in spot Market.
NewYork: $ 1.9800 ? 10 per Pound and
London : $ 1.9700 ? 10 Per Pound
2. Find out the the possible 3 point arbitrage in spot Market
NewYork: $ 1.9810 per Pound
London : DM 3.1650 per Pound and
Frankfurt: $0.6250 Per DM
3. Find out the possible arbitrage in Forward Market
Can $ 1.317 Per US$(spot)
Can $ 1.2950 Per US$ (6Months Forward Market)
6 Months Interest rates:
Us$ - 10%
Can$ - 6%
4. Find out the possible arbitrage in Forward Market
Can $ 0.665 Per DM (spot)
Can $ 0.670Per DM (3Months Forward Market)
3 Months Interest rates:
DM - 7%
Can$ - 9%
Click to expand...

Hey karthik, thanks for sharing such an essential information with us and i am sure it is going to help many people. BTW, i have also got a document on international finance and its management and going to share it with you to help others.
 

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