MBA7006 Finance of International Business Assignment Sample
Here’s the best sample of MBA7006 Finance of International Business Assignment.
QUESTION 1:
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a) Mid Rate for Each Maturity:
| US$/€ | US$/€ | ||
| Period | Bid Rate | Ask Rate | Mid-Rate |
| Spot | 1.3231 | 1.3232 | 1.32315 |
| 1 Month | 1.323 | 1.3231 | 1.32305 |
| 2 Months | 1.3228 | 1.3229 | 1.32285 |
| 3 Months | 1.3224 | 1.3227 | 1.32255 |
| 6 Months | 1.3215 | 1.3218 | 1.32165 |
| 12 Months | 1.3194 | 1.3198 | 1.3196 |
| 24 Months | 1.3147 | 1.3176 | 1.31615 |
Mid Rate = (Bid Rate + Ask Rate)/2
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b)
| US$/€ | US$/€ | Annual Forward Premium | ||
| Period | Bid Rate | Ask Rate | Mid Rate | |
| Spot | 1.3231 | 1.3232 | 1.32315 | |
| 1 Month | 1.323 | 1.3231 | 1.32305 | -0.09% |
| 2 Months | 1.3228 | 1.3229 | 1.32285 | -0.14% |
| 3 Months | 1.3224 | 1.3227 | 1.32255 | -0.18% |
| 6 Months | 1.3215 | 1.3218 | 1.32165 | -0.23% |
| 12 Months | 1.3194 | 1.3198 | 1.3196 | -0.27% |
| 24 Months | 1.3147 | 1.3176 | 1.31615 | -0.26% |
Annual Forward Premium = {(Current Rate – Spot Rate)/Spot Rate} * (360/No of Days) * 100%
- c) The maturities which are of shorter tenure has lower premium. The maturities which are of longer horizon will have higher premium. The reason for the same is that there are more uncertainty as the number of days for maturity is higher. Any change in any of the country or in any parts of the world, will have a huge impact on country’s currency movement. Thus the premium expected for longer horizon will have higher premium.
2)
- a) Bretton Woods Agreement:
The World War II has taken a huge toll on most of the country’s economy. There was a need for all the countries to work together and improve their economy. This made the top countries to meet in 1944 in Bretton Woods, New Hampshire.
As per the agreement, all the countries agreed to remove the gold as medium of the foreign exchange transaction and agreed to have US $ as the global currency. It is also agreed that US can print US$ to support the world’s economic growth. The major foundation of the Bretton Woods system was that the Gold availability is limited and this was a huge drawback on the countries to hold Gold as reserve. Thus there was a need to move to some other medium.
Bretton Woods made the US$ as the only currency which can be held as foreign reserve by other countries. However, in 1971 the huge stagflation in US due to the printing of more US$ led the US to tremble. Post a series of action, the other countries lost hope on US $ as well result in moving from single currency as a reserve to set of currencies.
- b) Fixed Exchange Rate
Fixed Exchange Rate is the system in which the currency of one country remains at a fixed exchange times of another country. This exchange rate remains same immaterial of any change in the any of the country’s inflation, economic growth, increase in output (agriculture, machinery, software,…), change in political scenario etc.
Advantages:
- i) The underdeveloped and developing countries can get their needed goods at a fixed exchange rate. The swings in the demand and supply will have any impact on the price of the product on the currency movement.
- ii) A country’s inflation or interest rate will not have any impact on its currency. The currency will stand detached from all other factors.
iii) Once the exchange rate is fixed, all the currency in the world can be replaced by a single currency. Thus creating a uniformity in the whole world.
Disadvantages:
- i) The exchange rate becoming fixed will reduce a huge amount of transaction in the world.
- ii) People will not go for any derivatives to hedge their currency.
iii) This fixed exchange rate will reduce one’s interest in trading on currencies.
- iv) In a fixed exchange rate environment, the change in internal monetary policy to control inflation or to promote growth will not have an impact as the funds from lower interest country will flow to the higher interest country and will create a huge dent in the economy.
- v) Fixed exchange rate will not motivate people to produce more or to generate higher GDP. Thus there will not be much creation in a country.
- c) Risks in Growing Globalization of Business:
- i) The growing globalization of business is making this whole world as a one village. Any people from any parts of the world can transact with any people in rest of the world. Any product that is being manufactured in one country, is being shipped to rest of the world. The country which has got a cost leadership in creating a product rules the world in that product. The manufacturer in other parts of the world with higher cost will be washed out as there is no scope for their cost.
- ii) A country or a manufacturer from a country might sell the products at a lower cost and they might kill the other manufacturers around the world. Once the whole knowledge, resources and the technology has been taken, the manufacturer might increase the prices and thereby all are forced to pay the price.
iii) The native manufacturer or the people of the home land might turn to be jobless because of globalization
- iv) The country which is late in picking up the skill (or) talent might lose its power in that industry.
- v) With the advent of Information Technology and the usage of English in most of the IT products, it forces all the people in the world to learn English.
- vi) The country’s culture, ethics, religion and history are being overlooked in the current pace of globalization.
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