Finance Management Essay

An American Mutual Fund company invested USD 2,000,000 in BSE on 31. 12. 2007 when the BSE sensex was 20,000 points. On 31. 03. 2008, the company observed that its portfolio depreciated by 23% when the BSE sensex touched 16,000 points. If the company decided to withdraw the investment from India, what would be the net increase or decrease in their investment in terms of dollar? | | | | | | | | | | | | $/Rs spot rates are quoted as:| | | | | | | | | On 31. 12. 2007| : 48. 30/. 35| | | | | | | On 31. 03. 2008| : 47. 05/10| | | | | | | | | | | | | | | | Amount invested (in $)| | | 2000000| | | | | | Amount invested in Rupees on 31. 12. 2007| 96600000| | | | | | | | | | | | | | | | Amount after portfolio depreciated| | 74382000| | | | | | Depreciated amount in $ on 31. 03. 2008| | 1579236| | | | | | | | | | | | | | | | Net Decrease in investment| | | $420,764| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2| Assume you are a bank and have a German exporter who exports to London and would like to sell pounds against Euros. The following market rates prevail:| | | | | | | | | | | | Euro/$| | 1. 3265/66| | | | | | | ? /$| | 1. 209/12| | | | | | | | | | | | | | | | | If your customer wants a cross rate for pound in Euro terms from you, what rate will you quote assuming you want a spread of 0. 0020 on the quote. | | | | | | | | | | | | Selling rate of Euro/ Dollar| | | 1. 3266| | | | | | Buying rate of Pound/ Dollar| | | 1. 5209| | | | | | | | | | | | | | | | Cross rate for Pound in Euro terms| | 1. 1465| | | | | | For a spread of 0. 0020| | | | | | | | | Euro / Pound| | | | 1. 1445/1. 1465| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3| Suppose that 475 yen could be purchased in the foreign exchange market for five U.

S. dollars today. If the yen is expected to depreciate by 8 percent tomorrow, how many yen could five U. S. dollars buy tomorrow? | | | | | | | | | | | | 1 USD| =| 95| Yen| | | | | | | | | | | | | | | | | If Yen depreciates by 8%| | | | | | | | | | | | | | | | | | | 1 USD| =| 103| Yen| | | | | | | | | | | | | | | | | 5 USD| =| 513| Yen| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4| As an exporter you have finalized an export deal for CHF 500,000 shipment which will be in the month of Apr 2013. Your treasury department is EXA Chemical the various possibilities to cover this exposure.

How will your treasury react under the following circumstance? Will they book forward contract or keep their position open – either USD/CHF leg or USD/INR leg? | | | | | | | | | | | | ·         USD/CHF to rise and USD/INR to fall| | | | | | | | ·         USD/CHF to rise and USD/INR to rise| | | | | | | ·         USD/CHF to fall and USD/INR to fall| | | | | | | | ·         USD/CHF to fall and USD/INR to rise| | | | | | | | | | | | | | | | | | For the solving this question I have made the following assumptions| | | | | | | | | | | | | | | | Rates at the time of striking the deal| | | | | | | | 1 USD| =| 0. 250| CHF| | | | | | | | | | | | | | | | | 1 USD| =| 54. 20| INR| | | | | | | | | | | | | | | | | 1 CHF| =| 58. 5946| INR| | | | | | | | | | | | | | | | | Case 1| | | | | | | | | | · USD/CHF to rise and USD/INR to fall| | | | | | | | | | | | | | | | | | Assumption| | | | | | | | | | 1 USD| =| 0. 9450| CHF| | | | | | | | | | | | | | | | | 1 USD| =| 54. 00| INR| | | | | | | | | | | | | | | | | 1 CHF| =| 57. 1429| INR| | | | | | | | | | | | | | | | | In this case treasury should book forward contracts for both the leg; USD/INR and USD/CHF to prevent further losses. | | | | | | | | | | | | Case 2| | | | | | | | | · USD/CHF to rise and USD/INR to rise| | | | | | | | | | | | | | | | | | 1 USD| =| 0. 9450| CHF| | | | | | | | | | | | | | | | | 1 USD| =| 54. 80| INR| | | | | | | | | | | | | | | | | 1 CHF| =| 57. 9894| INR| | | | | | | | | | | | | | | | | In this case, book a forward contract for USD/INR leg and keep the position open for USD/CHF leg and wait for it to fall| | | | | | | | | | | | | | | | | | | | | | Case 3| | | | | | | | | | · USD/CHF to fall and USD/INR to fall| | | | | | | | | | | | | | | | | | 1 USD| =| 0. 9000| CHF| | | | | | | | | | | | | | | | | 1 USD| =| 54. 00| INR| | | | | | | | | | | | | | | | 1 CHF| =| 60. 0000| INR| | | | | | | | | | | | | | | | | In this case, treasury should outrightly book a forward contract for USD/CHF leg and keep the USD/INR position open. | | | | | | | | | | | | Case 4| | | | | | | | | | · USD/CHF to fall and USD/INR to rise| | | | | | | | | | | | | | | | | | 1 USD| =| 0. 9000| CHF| | | | | | | | | | | | | | | | | 1 USD| =| 54. 80| INR| | | | | | | | | | | | | | | | | 1 CHF| =| 60. 8889| INR| | | | | | | | | | | | | | | | | In this case, treasury should book a forward contract for both the legs; USD/CHF and USD/INR to maximise profits| | | | | | | | | | |

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