Description

SESSION JUL – AUG 2024
PROGRAM MASTER OF BUSINESS ADMINISTRATION
(MBA)
SEMESTER IV
COURSE CODE & NAME DFIN401– INTERNATIONAL FINANCIAL
MANAGEMENT

Assignment Set – 1

1. Explain the Role of Factoring in Import Finance. How Does It Help in Mitigating Risks
and Enhancing Cash Flow for Importing Businesses? Illustrate with Examples of
Successful Applications.
Ans 1.
Factoring is a financial service that involves selling accounts receivables to a third party, known
as a factor, at a discounted rate. This mechanism allows businesses to access immediate cash
flow without waiting for payments from their debtors. In the context of import finance,
factoring plays a critical role in bridging the gap between payment obligations to foreign
suppliers and the receivables from local buyers. It is a valuable tool for importing businesses
to manage risks, enhance cash flow, and ensure smooth operations.
Role of Factoring in Import Finance
1. Improved Cash Flow: Importing businesses often face delayed payments from buyers
while needing to pay suppliers upfront. Factoring addresses this challenge by providing
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2. Examine the Concept of International Capital Budgeting for Multinational
Corporations (MNCs). What Are the Specific Factors That Make It Different from
Capital Budgeting for Domestic Companies?
Ans 2.
International capital budgeting is the process by which Multinational Corporations (MNCs)
evaluate and select investment projects in foreign markets. It involves assessing the potential
profitability and risks associated with projects that extend beyond national borders. While the
fundamental principles of capital budgeting—such as cash flow analysis, net present value
(NPV), internal rate of return (IRR), and payback period—are consistent with domestic capital
budgeting, the international context introduces complexities that require additional
3. Describe Different Types of Foreign Exchange Rates with Suitable Examples, and
Discuss the Concept of Balance of Payments
Ans 3.
Types of Foreign Exchange Rates
Foreign exchange rates play a pivotal role in international trade and finance by determining the
value of one currency in terms of another. Different types of foreign exchange rates reflect the
mechanisms and influences that govern these valuations. Broadly, they can be classified as
fixed exchange rates, floating exchange rates, and hybrid systems. Each type has unique
characteristics and implications for economic policies and international transactions.
Fixed exchange rates are established when a country’s currency value is pegged to another
currency or a basket of currencies. For example, under the Bretton Woods system, the US dollar
was pegged to gold, and other currencies were tied to the dollar. Fixed rates offer stability and
Assignment Set – 2
4. Explain How the International Money Market Provides Access to a Diverse Range of
Foreign Currencies. What Advantages Does This Offer to Individuals and Businesses
Engaged in Global Transactions?
Ans 4.
Access to Diverse Foreign Currencies Through the International Money Market
The international money market is a dynamic and integrated financial marketplace that
facilitates the borrowing, lending, and exchange of foreign currencies. It operates through a
network of financial institutions, including banks, central banks, and multinational
corporations, and provides access to diverse currencies required for global trade, investments,
and hedging against currency risks. The market’s extensive reach and liquidity make it a
cornerstone of international finance, enabling seamless currency transactions across borders.
For individuals, access to foreign currencies in the international money market simplifies
travel, education abroad, and remittances. Travelers, for instance, can exchange their domestic
5. Examine Various Methods for Assessing Country Risk and Provide a Suitable Example
for Each
Ans 5.
Country risk refers to the potential economic, political, and social challenges that businesses
or investors face when operating in or investing in a foreign country. Assessing country risk is
crucial for making informed decisions and mitigating losses. Several methods are used to
evaluate different dimensions of country risk, each offering insights into potential challenges.
Economic Risk Assessment
Economic risk evaluates a country’s financial stability, fiscal policies, and economic
conditions. Methods include analyzing macroeconomic indicators like GDP growth, inflation,
6. Examine the Various Internal and External Hedging Techniques Used to Manage
Foreign Exchange Exposure. Evaluate the Advantages and Limitations of Each
Approach for Multinational Corporations
Ans 6.
Foreign exchange exposure arises when fluctuations in exchange rates affect the value of
international transactions, assets, or liabilities. Multinational corporations (MNCs) use internal
and external hedging techniques to manage this risk and protect their profitability. Each
approach has distinct advantages and limitations.
Internal Hedging Techniques
Internal techniques involve strategies within the corporation’s operations to mitigate currency