INTERNATIONAL FINANCE
1. A multinational company is looking to raise USD 50000000 for its expansion strategy across different countries, where they are only present as of now. Based on their financial capital structure, the HQ decides to go for funding by issuing bonds in the international market. Describe the two broad categories of international bond markets. Briefly explain the various types of bond instruments that the MNC can consider issuing in the international bond market.
2. A forex trader from Mumbai collects the below information regarding the exchange rate
between INR and USD:
Bid Price: INR / USD = 74.2400
Ask Price: INR / USD = 74.2500
You are required to help him with the below questions he has:
(a) What is the direct exchange rate of INR-USD for the trader?
(b) What is the indirect exchange rate of INR-USD for the trader?
(c) What is a cross rate? If the bid and ask rate for USD-EUR are available as USD 1.16776-1.16782/EUR, what would be the bid-ask rates for INR/EUR, using the cross-rate method.
3. Kine, fancy footwear manufacturing company has an obligation to pay MXN 14 million in 30 days for a recent shipment from Mexico. The CFO of Kine is contemplating hedging the company’s MXN exposure on this transaction. She collects the below information regarding the interest rates and exchange rates, from her forex trader:
Spot Rate: MXN 20.08 / USD
Forward Rate: MXN 20.28 / USD
30-day Put Option on USD MXN 19.50 / USD: 1% Premium
30-day Call Option on USD MXN 20.50/ USD: 3% Premium
USD 30-day interest rate (annualized): 7.5%
MXN 30-day interest rate (annualized): 15%
You are required to answer the below questions to assist the CFO:
a. What are the hedging options available to Kine? What is the hedged cost of Kine’s payable using a forward market hedge and using a put option hedge?
b. What is the hedged cost of Kine’s payable using money market hedge?
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