1. (a) Balance of payments.
(b) Flexible exchange rate.
(c) Transaction exposure
(d) International inventory management.
(e) IMF.
(f) Parallel loans.
2. What are the economic issues in internation financial environment?
3. How is exchange rate determined?
4. Explain the sources of financing foreign trade.
5. Elucidate investment strategy followed at the international level.
6. Enumerate the advantages of centralised cash management for a MNC.
7. Explain the nature of participants in the foreign exchange market.
8. Case study:
Firm A needs fixed-rate funds which are available to it at the rate of 10.50% to be computed
half-yearly, but it has access to cheaper floating – rate funds available to it at LIBOR + 3%.
Firm B needs floating – rate funds available to it at 6-month LIBOR flat, but has access to
cheaper fixed-rate funds available to it at the rate of 9.50% to be computed half-yearly.
Both the principals are identical in size and maturity and are in the same currency. The
LIBOR of firm A is 9.75% and that of firm B is 9.65%. Explain how interest rate swap takes
place. Calculate the cost of borrowing of firm A and firm B and the gain to Swap dealer.

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