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4th August 2014, 07:52 AM
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ICFAI University MBA International Management previous year question papers

Will you please share with me the ICFAI University MBA International Management previous year question papers?
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  #2  
4th August 2014, 08:38 AM
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Re: ICFAI University MBA International Management previous year question papers

As you want to get the ICFAI University MBA International Management previous year question papers so here it is for you:

Some content of the file has been given here:

1. As per exchange control regulations, licenses are issued for import of goods into India for ______ value.
(a) FOB
(b) C&F
(c) CIF
(d) FOB value plus 21.125%
(e) Cost plus 20%.

2. Which of the following is not an external hedging technique?
(a) Forwards
(b) Exposure netting
(c) Futures
(d) Options
(e) Money markets.

3. The system in which the exchange rates are determined by the demand and supply position for the currencies in
the foreign exchange market is known as
(a) Target zone arrangement system
(b) Crawling peg system
(c) Fixed exchange rate system
(d) Floating exchange rate system
(e) Currency board system.

4. Dumping means
(a) Destroying the goods to create scarcity
(b) Throwing the goods into the sea to create scarcity
(c) Donating the goods to least developed countries as charity
(d) Selling the goods at actual cost
(e) Selling the goods below the cost.

5. An exporter requested his banker to quote a rate for his receivable of $10,000. The banker agrees to quote the
rate relying on the inter bank rate for dollar that is Rs.48.75/77$ by loading a margin of 0.15% on the rate. The
rate quoted by the banker is
(a) Rs.48.68/$
(b) Rs.48.70/$
(c) Rs.48.82/$
(d) Rs.48.84/$
(e) Rs.48.83/$.

6. Which form of purchasing power parity refers to the Law of One Price?
(a) Numerical form
(b) Relative form
(c) Accounting form
(d) Absolute form
(e) Expectations form.

i. e x e
7. Under which of the following International Commercial Terms (INCOTERMS), the seller places the goods at his
premises at the disposal of the buyer or any other named place, say factory, warehouse etc?
(a) Cost and Freight (CFR)
(b) Carriage paid to (CPT)
(c) Ex works (EXW)
(d) Free carrier (FCA)
(e) Free on Board (FOB).

8. For compilation of Balance of Payment(BoP) India follows the principles laid down by the
I. The Income Tax Act.
II. The Foreign Trade (Development and Regulation) Act.
III. The IMF manual.
IV. The Foreign Exchange Management Act.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (I) and (IV) above
(e) Both (II) and (IV) above.

9. Which of the following statements is true when a country has a current account surplus in its balance of
payment account?
(a) Country is not a net lender to the rest of the world
(b) Country would need not borrow from outside to build-up its productive capabilities in order to achieve
high rates of growth
(c) Country is living above its means
(d) It is not beneficial for a developing country
(e) Country is consuming as much as it is producing.

10.Consider the following rates quoted in Chennai forex market:
Rs./€ : 62.36/38
€/£ : 1.1761/63
The synthetic quotes of Rs./€ are
(a) 73.34/73.38
(b) 53.02/53.03
(c) 0.0301/0.0313
(d) 53.80/53.84
(e) 73.75/73.78.

11.If there are no barriers to trade among the member countries and the external barriers for non-members are also
common, then this form of trading block falls under
(a) Free trade area
(b) Common Market
(c) Customs Union
(d) Economic Union
(e) Autarky.

12.Which of the following is false about a forward contract in foreign exchange?
(a) A forward contract can be either outright forward or option forward
(b) It is an agreement where the parties agree to buy or sell a currency at a future date
(c) The future date should be beyond one month from the date of contract
(d) The price of the currency is fixed at the time of contract
(e) The terms of delivery and payments are also fixed at the time of contract.

13.Bank of Misr (BOM), Cairo is having an euro currency account with Commerz Bank, Frankfurt. When Citizens
Bank of Canada, Vancouver refers to this account of BOM, while corresponding with Commerz Bank, Frankfurt,
it would refer as
(a) Shadow account
(b) Vostro account
(c) Nostro account
(d) Loro account
(e) Mirror account.

14.Economic exposure can be managed by which of the following techniques?
I. Forwards.
II. Futures.
III. Market Selection.
IV. Product Mix.
(a) Both (I) and (II) above
(b) Both (I) and (III) above
(c) Both (I) and (IV) above
(d) Both (II) and (III) above
(e) Both (III) and (IV) above.

15.Consider the following:
One year euro interest rate is 5% (compounded quarterly)
One year dollar interest rate is 3% (compounded quarterly)
The Spot exchange rate is $1.2788/€.
According to interest rate parity, the 6 months forward exchange rate is
(a) $1.2725/€
(b) $1.2915/€
(c) $1.2824/€
(d) $1.2919/€
(e) $1.3077/€.

16.As per the exchange control regulations, an exporter is required to submit all the shipping documents
evidencing export to an authorized dealer within
(a) 3 days from the date of shipment
(b) 7 days from the date of shipment
(c) 15 days from the date of shipment
(d) 21 days from the date of shipment
(e) 30 days from the date of shipment.

17.The letter of credit which can be cancelled by the issuing bank at the request of the applicant without the consent
of the beneficiary is called
(a) Deferred Payment letter of credit
(b) Transferable letter of credit
(c) Non-transferable letter of credit
(d) Revolving letter of credit
(e) Revocable letter of credit.

18.Which of the following advances is a pre-shipment credit?
(a) Advances against receivables from the Government of India
(b) Advances against retention money relating to exports
(c) Advances against approved deemed exports
(d) Packing credit
(e) Advance against export bills.

19.Which of the following statements is true in case of a direct quote?
(a) Exchange margin is to be added to the bid rate and ask rate
(b) Exchange margin is to be added to the bid rate and deducted from the ask rate
(c) Exchange margin is to be deducted from the bid rate and the ask rate
(d) Exchange margin is to be deducted from the bid rate and added to the ask rate
(e) Exchange margin is to be added to the bid rate only.

20.Consider the following rates:
Rs./$ Spot 45.98/45.99
3 months 22/21
The annualized percentage discount on dollar for 3 months will be
(a) 1.57%
(b) 1.24%
(c) 1.73%
(d) 1.74%
(e) 1.87%.

21.Which of the following theories states that new products are developed as a result of technological innovations
and trade patterns are determined by the market structure and the phase in a new product’s life?
(a) Theory of Comparative Advantage
(b) Theory of Absolute Advantage
(c) Imitation Gap Theory
(d) International Product Life Cycle Theory
(e) Heckscher-Ohlin Model.

22.The exposure that arises from the need to convert values of assets and liabilities denominated in a foreign
currency into the domestic currency is called
(a) Transaction exposure
(b) Transformation exposure
(c) Translation exposure
(d) Operating exposure
(e) Financial exposure.

23.When ‘Suzuki’ a Japanese company is floating USD denominated bonds in New York, the bond is known as
(a) Samurai bond
(b) Shogun bond
(c) Shibosai bond
(d) Yankee bond
(e) Geisha bond.

24.In balance of payments statement, short term inflows and outflows of capital are recorded in
(a) Current account
(b) Capital account
(c) Official reserves account
(d) Errors and omissions account
(e) Transfer payments account.

25.An Indian company based in Mumbai needs short term funds of Rs.50 million for a period of 3 months. The
company collected the following information from its banker
Spot :Rs/$ : 45.90/92
3 months forward : 15/17 paise
If the company decides to borrow dollar for the purpose, the amount of dollars required to borrow is
(a) $10,88,850
(b) $10,89,325
(c) $10,85,776
(d) $10,84,834
(e) $10,85,305.

26.Which of the following is not correct?
(a) Important function of the IMF is to provide reserve credit to the member countries facing temporary
balance of payment problem
(b) Oil facility is a type of IMF lending
(c) International Development Association (IDA) endeavors to finance those projects in developing
countries, which may not be financially profitable
(d) International Finance Corporation (IFC) insists on government guarantee for financing
projects
(e) IFC helps the development of private sector in different countries.

27.Which of the following is true under a currency board system?
(a) The interest rates are automatically set by the market mechanism
(b) When there is a higher demand for the anchor currency, the reserves with the currency board gets
enhanced
(c) Lending to either the government or the domestic banks by the currency board is
allowed
(d) The board can act as the lender of the last resort
(e) Exchange rates are unstable.

28.Which of the following statements is not true as per the exchange control regulations governing imports?
(a) Normally remittances against imports shall be completed within 6 months from the date of shipment
(b) Foreign exchange for import payment can be sold to persons in Nepal or Bhutan
(c) Goods imported from Nepal or Bhutan against Letter of Credit (LC), payment will be made in Indian
Rupees and LC will be treated as Domestic LC
(d) Authorized dealers can deliver the import documents to the holders of letter of authority
(e) An importer shall hold an Import-Export Code Number allotted by Director General of Foreign Trade.

29.If a country has a Balance of Payments surplus and the Central Bank is following floating exchange rate system,
then the foreign exchange rate for its currency would
(a) Rise, its exports would increase and its imports would decrease
(b) Rise, its exports would decrease and its imports would increase
(c) Fall, its exports would increase and its imports would decrease
(d) Fall, its exports would decrease and its imports would increase
(e) Be stable.

30.Under which of the following facilities IMF extends help to prevent countries, suffering due to price shocks?
(a) Extended Facility
(b) Standby arrangement
(c) Buffer Stock Financing Facility
(d) Compensating Financing Facility
(e) Supplementary Financing Facility.

Section B : Problems/Caselets (50 Marks)
• This section consists of questions with serial number 1 – 6.
• Answer all questions.
• Marks are indicated against each question.
• Detailed workings/explanations should form part of your answer.
• Do not spend more than 110 - 120 minutes on Section B.
1. Ayur Pharmaceuticals, Kottakal, a Kerala firm has exported drugs valuing

US$100,000 to Nigeria on 01-10-2008 on the condition that the importer
undertakes to pay the bill within180 days from the date of shipment. The importer
confirmed that the payment would be made on 31st March, 2009, 180th day from the
date of shipment. The bank charges interest @8.5% on export bills discounted from
customers.
The exchange rates and interest rates prevailing on 01-10-2008 are as under
Exchange rates Spot Rs./$ 48.60/62
6 months forward 48.90/92
Interest rates Mumbai Rs. 8% - 9%
New York $ 3% - 4%
The exporter needs rupee funds immediately to execute another export order.
You are required to determine which of the following options ensure maximum
inflow of rupee without exposing the company to exchange risk:
a. Forward cover.
( 3
marks
)
b. Money market cover.
( 5
marks
)
2. A Multinational Dairy products manufacturing company in Copenhagen, Denmark,
proposes to invest its surplus funds of DKr 20 million for six months. The Treasury
Manager has collected the following information from his banker to invest in euro
and Pound Sterling currencies including that of home currency to earn more interest
income. The company does not want to expose the investment to exchange risk, for
that the company will take cover in the forward market.
Spot DKr/US$ 4.7960/4.7966
US$/£ 1.9639/ 1.9642
6 months forward DKr/US$ 4.8436/ 4.8442
US$/£ 1.9495/1.9497
6 months interest rates (p.a.)
US $ : 3.20% – 3.50%
DKr : 5.40% – 5.60%
£ : 6.20% – 6.50%
You are required to determine the currency in which the company should invest to
have more returns. ( 12marks)

Caselet 1
Read the caselet carefully and answer the following questions:
3. The US economy is suffering from recession on one hand, whereas the emerging
Asian economies are reeling under inflation on the other hand. In this context,
explain the probable impact of ‘Global Inflation’ on the US and other Asian
economies. ( 7 marks)

4. Elucidate the measures taken by the monetary authorities to contain the inflation in
India. ( 8 marks)

The US economy is a powerful force in world trade. A slowdown is bound to
generate global ripples. For years, the US has been importing deflation to its shores
from surplus labor markets such as India and China. Now that indigenous inflation
has risen in those markets, the economic utility has changed. US economy is
expected to grow at 0.50% in 2008 as compared to 2.20% in 2007. Asia (including
Japan) and European growth will also slow as result of US recession. Asian growth
is expected to grow at 6.20% in 2008 (from 7.40% in 2007) while European

economic growth is expected to decline sharply, by 1.25 percentage points to 1.50%
in 2008. India and Chinese GDP growth rates will fall marginally by 0.50% in 2008
(from 2007 growth). Japan and Australian growth rates will also slowdown in 2008.
The earlier theory of Asia and other emerging nation growth being delinked from a
US recession has failed. In fact, Asia and other emerging nations have been affected
by a US led recession.
Global inflation has risen mainly due to unstoppable rise in crude oil prices and
sharp rise in food prices. Global central banks have to choose between inflation and
growth. The US Federal Reserve has chosen growth while the European Central
Bank, the Reserve Bank of India, Chinese Central Bank and other central banks
have give preference to inflation in their monetary policy decisions. Inflation rise
may not overheat the global economy in the short-term. In the long-term, crude oil
prices will be the key. As and when crude oil prices fall sharply for a sustained
period of time, global economy will overheat. If US economy moves away from
recession, India and Chinese growth rates will soar and global growth rates will rise
sharply which could overheat the global economy. Everything will depend on how
the quickly the world emerges from the energy price shock and food price shock it
is experiencing. The US recession has not had a major impact on commodities
consumption outside of the US, and rather, the big fear seems to be inflation, more
specifically, rising energy and food prices. Emerging market economies, where
spiraling food and energy prices make up a larger component of the CPI, are most at
risk of `overheating' and might use tighter monetary policy as a balance. However,
the world economy is not out of the woods yet. The full effect of the US recession
could make for a period of much slower growth for the world economy in the
coming few years.
Oil and fuel prices have found new plateaus. They're not likely to return to their
previous levels unless there's a significant shift in supply and/or a diminution in
demand. It's hard to grow an economy nowadays without relying upon oil. Longterm
fundamentals are bullish due to supply constraints and ever rising demand.
There is lack of new discovery in crude oil.
In the previous decade, inflation arose mostly because of domestic factors (supply
usually outstripped by demand), but now the situation is different. Today's inflation
is wrought largely by global forces. Imbalances in the global economy have led
many countries, to engage in `competitive devaluation' of their currencies to gain
access to markets like the US. Central banks foster accumulation of foreign
exchange, notably the US dollar at the expense of home currencies. This artificial
undervaluation of currencies has been a significant contributor to increased global
liquidity.

Caselet 2
Read the caselet carefully and answer the following questions:
5. “Capital account convertibility (CAC) is widely regarded as one of the hallmarks of
a developed economy”. In the light of above statement, discuss the basic tenets
required for successful implementation of safe CAC. ( 7 marks)

6. ‘Following the East Asian crisis, even the most ardent votaries of CAC in the World
Bank and the IMF realized that the dangers of going in for CAC ….’ In the light of
the above statement, briefly discuss the arguments against the fuller convertibility of
rupee. ( 8 marks)

In simple language Capital account convertibility (CAC) means that it allows
anyone to freely move from local currency into foreign currency and back.
Current account convertibility allows free inflows and outflows for all purposes
other than for capital purposes such as investments and loans. In other words, it
allows residents to make and receive trade-related payments – receive dollars (or
any other foreign currency) for export of goods and services and pay dollars for

import of goods and services, make sundry remittances, access foreign currency for
travel, studies abroad, medical treatment and gifts etc. In India, current account
convertibility was established with the acceptance of the obligations under Article
VIII of the IMF’s Articles of Agreement in August 1994.
Contrary to general belief, CAC can coexist with restrictions other than on external
payments. It does not preclude the imposition of any monetary/fiscal measures
relating to forex transactions that may be warranted from a prudential point of view.
CAC is widely regarded as one of the hallmarks of a developed economy. It is also
seen as a major comfort factor for overseas investors since they know that anytime
they change their mind they will be able to re-convert local currency back into
foreign currency and take out their money. In a bid to attract foreign investment,
many developing countries went in for CAC in the 80s not realizing that free
mobility of capital leaves countries open to both sudden and huge inflows as well as
outflows, both of which can be potentially destabilizing. More important, that unless
you have the institutions, particularly financial institutions, capable of dealing with
such huge flows countries may just not be able to cope as was demonstrated by the
East Asian crisis of the late nineties.
The East Asian experience made the monetary authorities to move slowly but
cautiously towards CAC with priority being accorded to fiscal consolidation and
financial sector reform above all else.
In India, the Tarapore committee had laid down a three-year road-map ending 1999-
2000 for CAC. It also cautioned that this time-frame could be speeded up or delayed
depending on the success achieved in establishing certain pre-conditions-primarily
fiscal consolidation, strengthening of the financial system and a low rate of
inflation.
Convertibility of capital for non-residents has been a basic tenet of India’s foreign
investment policy all along, subject of course to fairly cumbersome administrative
procedures. It is only residents – both individuals as well as corporates – who
continue to be subject to capital controls. However, as part of the liberalization
process the government has over the years been relaxing these controls. Thus, a few
years ago, residents were allowed to invest through the mutual fund route and
corporates to invest in companies abroad but within fairly conservative limits.
Buoyed by the very comfortable build-up of forex reserves, the strong GDP growth
figures and the fact that progressive relaxations on current account transactions have
not lead to any flight of capital, the government announced further relaxations on
the kind and quantum of investments that can be made by residents abroad.

Section C : Applied Theory (20 Marks)
• This section consists of questions with serial number 7 - 8.
• Answer all questions.
• Marks are indicated against each question.
• Do not spend more than 25 - 30 minutes on Section C.
7. Multinational companies will have multiple divisions in different countries.
Each of the division is exposed to different cash positions, receivables and
payables in different currencies. What is the technique used by the MNCs for a
better cash management? Discuss its advantages and disadvantages in brief. ( 10 marks)


8. Write short notes on:
a. The mechanism of Letter of Credit and the limitations of Letter of Credit. ( 5 marks)

b. Post-shipment credit. ( 5 marks)

Suggested Answers

Section A : Basic Concepts
Answer Reason
1. C Import licenses for import of goods are issued for CIF value.
2. B External hedging techniques are the ones which do not form part of the day-to-day
activities .Viewed against the above, exposure netting being done on a continous basis
is an internal technique whereas all others form external techniques in which external
parties are involved.

3. D The exchange rates under floating exchange rate system are determined by the
demand and supply position for the currencies in the foreign exchange market.

4. E Dumping means selling the goods below the cost.
5. A The banker who considers the bid rate of Rs.48.75, loads a margin of 0.15% on the
rate. The margin of 0.15% is deducted from the bid rate.
48.75
Less: Margin at 0.15% 0.07
Rs.48.68
The rate quoted by the banker is Rs.48.68.

6. D Absolute form of purchasing power parity refers to the law of One Price.
7. C Ex Works means that the seller has delivered if he places the goods at the disposal of
the buyer at the seller’s premises or any other named place (works, factory,
warehouse, etc.)

8. C For BOP compilation India follows the principles laid down by the IMF manual.
9. D A current account surplus implies that a country is not consuming as much it is
producing, or in other words, is living below its means. While this type situation is
may be beneficial to a developed country, a developing country already facing
scarcity of resources can hardly afford not to consume what it is capable of
producing. Instead, a developing country would need to borrow from outside to buildup
it productive capabilities in order to achieve high rates growth. Hence, option (d)
is true and correct answer. All other statements are false.

10. A (Rs./£)bid = (Rs./€)bid  (€/£)bid
= 62.361.1761= 73.34
(Rs./Euro)ask = (Rs./€)ask  (Rs./€)ask
= 62.381.1763 =73.38
Rs./Euro = 73.34/38

11. C If there are no barriers to trade among the member countries and the external barriers
for non-members are also common, then this form of trading block falls under
customs union.

12. C In outright forward contracts the future date can be any date beyond two business
days (spot).

13. D Bank of Misr (BOM), Cairo is having an euro currency account with Commerz Bank,
Frankfut. When Citizens Bank of Canada, Vancouver refers to this account of BOM,
while corresponding with Commerz Bank, Frankfurt, it would refer as Loro account.
Loro account means “their account with you”.

14. E Economic exposure can be managed by the techniques, market selection and product
mix.


15.
B
2 0.03
1
4

2 1 0.05
1 1.2788
S 4

= $1.2915/€.

16. D An exporter has to submit all the shipping documents evidencing export, to an
Authorized Dealer within 21 days from the date of shipment.

17. E A revocable letter of credit is one which can be canceled or revoked by the issuing
bank at the request of the applicant without the consent of the beneficiary.

18. D Packing credit is a Pre-shipment credit. Pre-shipment credit is given to the exporter to
purchase/process the raw materials and export the finished goods. Credit extended to
the exporters, prior to the shipment of goods is called Pre-shipment credit Postshipment
credit is the credit given to the exporter after the shipment of goods. All
options under (a), (b) (c) and (e) are the examples of post shipment credit. Hence the
correct answer is (d).

19. D In the case of direct quote, the principle followed is “Buy low – sell high”. Hence the
exchange margin is to be deducted from the bid rate and added to the ask rate.

20. E The annualized percentage discount on dollar for 3 months
=
mid mid
mid
Forward(A/B) -Spot(A/B)
Spot(A/B)
=
45.76 45.78 45.98 45.99
2 2
45.98 45.99
2

  =
45.770 45.985 12
100
45.985 3


= 1.87%

21. D International Product Life Cycle (IPLC) theory, given by Vernon, explain the various
stages in the life of a new product and the resultant international trade. The important
principles of this theory are:
• New products are developed as a result of technological innovations.
• Trade patterns are determined by the market structure and the phase in a new
product’s life.

22. C The exposure that arises from the need to convert values of assets and liabilities
denominated in a foreign currency into the domestic currency is called translation
exposure.

23. D Dollar denominated bonds issued in the US domestic markets by non-US companies
are known as
‘Yankee bond’.

24. B Though the outflows or inflows of capital are short term, they are still recorded in the
capital account.

25. B 50000000
45.90 = $10,89,325.

26. D Statements in options (a), (b), (c) and (e) are correct. It is incorrect that IFC insists on
government guarantee for financing projects. In fact IFC does not insist on
government guarantee. Correct answer is (d).

27. A In the currency board system, the board does not have any discretionary powers over
the monetary policy; the interest rates are automatically set by the market mechanism.
Options (b), (c), (d) and (e) are not true.

28. B Foreign exchange for import payment can be sold to by Authorized Dealer only to
persons resident in India. For this purpose, persons, companies or other organizations
resident in Nepal and Bhutan should be treated as Non-resident. All other options are
true.


29. B If a country has a balance of payments surplus and the Central Bank is following
floating exchange rate system, then the foreign exchange rate for its currency would
rise. As a result of this exports would decrease and its imports would increase.

30. C Buffer Stock Financing Facility introduced in 1969, this scheme provides for
countries receiving financial assistance from IMF in order to purchase approved
primary products. This help is extended to prevent countries from suffering due to
price shocks.



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