Description
International Finance
Dec 2026 Examination
Q1 A newly industrializing country is seeking to stabilize its currency as it faces significant capital inflows, increasing exchange rate volatility, and periodic balance of payment deficits. The finance ministry is debating whether adopting a fixed exchange rate system similar to the Bretton Woods model or transitioning to a managed float would best support the country’s economic growth and global competitiveness. The central bank is particularly concerned about the implications for monetary policy autonomy and long-term financial stability in a globalized environment. Apply the merits and demerits of fixed, floating, and managed float exchange rate systems to analyze which framework would be most suitable for the country’s current situation. What decision would you recommend to the central bank, and how should the chosen system address both exchange rate stability and flexibility? (10 Marks)
Ans 1.
Introduction
Rising capital inflows, volatile exchange rates, and recurring balance of payment deficits are pulling this newly industrializing country toward a genuine policy choice, not a routine adjustment. Fixed, floating, and managed float exchange rate systems each trade monetary policy autonomy for different degrees of currency stability, so the finance ministry’s decision ultimately depends on which trade-off best matches the country’s current stage of global financial
Its Half solved only
Buy Complete assignment from us
Price – 190/ assignment
NMIMS Online University Complete SolvedAssignments session DEC 2026
Last date 28 Oct 2026
buy cheap assignment help online from us easily
we are here to help you with the best and cheap help
Contact No – 8791514139 (WhatsApp)
OR
Mail us- [email protected]
Our website – www.assignmentsupport.in
Q2 (A) An analyst is comparing the relationship between inflation rates and exchange rate movements of two countries, India and Country X, over three consecutive years. Relevant data is shown below: Year 1, India’s Inflation Rate: 4%, Country X Inflation Rate: 1.5%, Actual Change in INR/X Unit Exchange Rate: 2.0%; Year 2, India’s Inflation Rate: 6%, Country X Inflation Rate: 2.0%, Actual Change in INR/X Unit Exchange Rate: 3.8%; Year 3, India’s Inflation Rate: 5%, Country X Inflation Rate: 2.5%, Actual Change in INR/X Unit Exchange Rate: 3.1%. (a) Using Relative Purchasing Power Parity theory, compute the theoretical percentage change in the INR/X Unit exchange rate for each year. (b) Compare the theoretical values to actual movements and provide a step-wise quantitative analysis of whether PPP under- or over-predicts currency depreciation in each year. Support your reasoning with calculations and interpretations. (5 Marks)
Ans 2(A).
Introduction
Relative Purchasing Power Parity links the expected movement in an exchange rate to the inflation differential between two countries, offering a theoretical benchmark against which actual currency movements can be judged. Comparing this theoretical prediction to the actual change in the INR per unit of Country X’s currency across the three years reveals whether
Q2 (B) A leading multinational corporation (MNC) has operated successfully in Country X, but a recent economic downturn has prompted the central bank to tighten foreign exchange controls and impose strict dividend restrictions. The MNC’s subsidiary is now required to retain 70% of after-tax profits locally, and approval for repatriating even the capped dividends is often delayed by bureaucracy. Additionally, the host country’s currency has shown signs of heightened volatility, exposing blocked profits to potential devaluation. The MNC’s finance team is considering reinvestment of blocked funds versus employing transfer pricing and management fee mechanisms to extract value, all while observing compliance requirements. As the financial director, critically evaluate which strategy, local reinvestment or aggressive financial structuring (using transfer pricing and management fees), offers a more sustainable solution to preserving and maximizing the MNC’s value in the face of government controls. Justify your decision by weighing the long-term financial, regulatory, and reputational risks and benefits. (5 Marks)
Ans 2(B).
Introduction
Tightened foreign exchange controls and mandatory profit retention have trapped the subsidiary’s cash inside Country X, forcing the finance director to choose between reinvesting the blocked funds locally or extracting value through transfer pricing and management fee mechanisms. Both routes carry genuine trade-offs between near-term liquidity, regulatory exposure, and the
