...Title: Complexities of the U.S Financial System Students Name: Shellie Richardson Professor’s Name: Karin Torres, MBA Course Title: Principles Of Finance Date: July 28, 2013 The United States financial (wealth) system is largely considered to be the most recognized system in the world. Financial markets are designed to skillfully direct the movement of money and savings and investments in the economy. By doing this the United States financial system stimulates the growth and the production of money, goods and services. The combination of an established and secure financial markets and institutions systems, in addition to a varied collection of financial goods and services , will meet the needs of borrowers, lenders and investors therefore the overall economy can be maintained. How does the U.S. Financial market impact the economy, businesses, and individuals the fact is that an established and securely operating financial market plays an important role in contributing to the strength and productivity of an economy? There is a strong correlation between financial market development and economic growth. For example, in Chapter 1 of their 2001 book, Financial Structure and Economic Growth, editors Demirgüç-Kunt and Levine concluded: Financial markets (such as those that trade stocks or bonds), instruments (from bank CDs to futures and derivatives), and institutions (from banks to insurance companies to mutual funds and pension funds) provide opportunities for investors...
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...Essay topic: why companies use currency derivatives? Currency derivative can be defined as a contract or financial agreement to exchange two currencies at a given rate or a contract whose value is derived from the rate of exchange of two currencies on spot (Shoup, 1998). Currency derivatives are developed and adopted to implement a strategy known as hedging, in which an organisation acquires a contract in order to offset an expected drop or rise in value of a position or future cash flow (Belk & Edelshain, 1997). This essay will outline the incentives and rationales behind an organisation that uses currency derivatives. There are three types of currency derivatives used in hedging, future contracts, forward contracts and options, although swaps are also commonly considered as a currency derivative (Shoup, 2008). These instruments are derived from a spot rate, which is the price of the “underlying currency” (Eiteman, Stonehill & Moffett, 2009). Options are normally more costly than future contracts and forward contracts, because options are rights rather than obligations to buy or sell a currency (gives buyers the right not to exercise the contract if the spot rate movement is not favourable) (Belk & Edelshain, 1997). Research in New Zealand indicates that 70% of currency derivative users used forwards, which are most prevalent currency derivative instrument (Chan, Gan & McGraw, 2003). This is possibly because forwards are easy to manage and understand and can be used in frequent...
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...Presented to: JIMA A. DE LEON, B.S.I.M., M.B.A School of Graduate Studies Central Philippine University Jaro, Iloilo City Chapter Two and Three of Mishkin’s The Economics of Money, Banking and Financial Market Chapter Review Faculty, College of Business and Accountancy Graduate Programs Central Philippine University Iloilo City In partial fulfilment Of the Course Requirements In Philippine Financial System MBA 612a Presented by: JOYNEN A. BALDEVARONA July 24, 2015 Chapter 2: An Overview of the Financial System This chapter gives an overview of the financial markets and institutions as well as explain the concept and role of financial intermediaries in the economy. According to Mishkin, there are six basic functions the Financial system performs. These functions are as follows: 1. Borrowing and Lending Financial Market can channel funds from savers to borrowers either through direct finance, in which borrowers borrow funds directly from the lenders by selling them securities or through indirect finance which involves financial intermediaries that stand between the lender (savers) and the borrower (spenders) and help transfer funds from one to another. Mishkin also pointed out in this chapter that firms in major developed countries have traditionally relied more on indirect than direct financing in obtaining their borrowed funds. 2. Price Determination 3. Information Aggregation and Coordination 4. Risk Sharing 5. Liquidity 6. Effiency In this chapter...
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...The Indian Rupee has depreciated to an all time low with respect to the US Dollar. On 28th August 2013, the Indian rupee had gone down to 68.825 against the Dollar but the situation was somewhat revived by the Reserve Bank of India that decided to open a special window for helping state owned oil companies – Indian Oil Corp Ltd., Bharat Petroleum Corp and Hindustan Petroleum Corp. The beneficiaries will be able to buy dollars through this window till further notice is provided. These companies, together, require about 8.5 billion dollars every month to import oil and it is expected that this will help them meet the requirements. This has had an immediate effect as is evident from the fact that the INR has started at 67 against the USD at the early proceedings in the Interbank Foreign Exchange Market. The question, however, is why this is happening. There are several reasons that can be enumerated in such a scenario: Basic law of economics As per the rudimentary laws of economics if the demand for USD in India exceeds its supply then its worth will go up and that of the INR will come down in that respect. It may be that importers are the major entities who are in need of the dollar for making their payments. Another possibility here could be that the Foreign Institutional Investors are withdrawing their investments in the country and taking them elsewhere. This can create a shortfall in supply of the dollar in India. In fact, of late, the FIIs have been heading to greener pastures...
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...A REPORT ON INTERNATIONAL TRADE FINANCE (PROCEDURE, DOCUMENTATION, FOREX AND RISK) - With Reference to KOTAK MAHINDRA BANK The project report is submitted to the Department of International Business in partial fulfillment of course curriculum for the degree of MASTER OF BUSINESS ADMINISTRATION (INTERNATIONAL BUSINESS) Submitted by DURGA ANAND SANIPILLI REG NO: 1105616 Under the guidance of DR.MOHAN K PILLAI, & MR. M RAVI CHANDRA HOD, Department of international business, Associate vice president and BM Pondicherry University. Kotak Mahindra bank Hyderabad. DEPARTMENT OF INTERNATIONAL BUSINESS SCHOOL OF MANAGEMENT PONDICHERRY UNIVERSITY...
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...Student Signature of the Student Date ACKNOWLEDGEMENT I express my profound gratitude to XXXX, Faculty M.B.A for his guidance and support all through the completion of the project. I also express my hurtful thanks to XXXXX for providing valuable suggestions in completions of the project. I take this opportunity to acknowledge unreserved support extended to me by the Project and Training team of HCL TECHNOLOGIES. I am very much indebted to the dedicated and experienced staff of MBA. It is indeed a pleasant task and small effort to thank all the people especially some of my friends who have contributed towards the successful completion of this project work. Finally, I would like to express my gratitude to my parents for their endearing support and cooperation which has made me complete this project fruitfully. SUMMARY A Multinational company with high currency risk is likely to face financial difficulties which tend to have a disrupting on the operating side of the business. A disrupted financial conditions are likely to: • Result in the problem of adverse incentives. • Weakens the commitment of various stake holders. Foreign exchange exposure and risk are important concept in the study of international...
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...Answers and Solutions to End-of-Chapter Questions and Problems 17 4. The Market for Foreign Exchange Suggested Answers and Solutions to End-of-Chapter Questions and Problems 23 5. International Parity Relationships Suggested Answers and Solutions to End-of-Chapter Questions and Problems 33 6. International Banking Suggested Answers and Solutions to End-of-Chapter Questions and Problems 40 7. International Bond Markets Suggested Answers and Solutions to End-of-Chapter Questions and Problems 50 8. International Equity Markets Suggested Answers and Solutions to End-of-Chapter Questions and Problems 56 9. Futures and Options on Foreign Exchange Suggested Answers and Solutions to End-of-Chapter Questions and Problems 62 10. Currency and Interest Rate Swaps Suggested Answers and Solutions to End-of-Chapter Questions and Problems 70 11. International Portfolio Investments Suggested Answers and Solutions to End-of-Chapter Questions and Problems 78 12. Management of Economic Exposure Suggested Answers and Solutions to End-of-Chapter Questions and Problems 87 13. Management of Transaction Exposure Suggested Answers and Solutions to End-of-Chapter Questions and Problems 94 14. Management of Translation Exposure Suggested Answers and Solutions to End-of-Chapter Questions and Problems 111 15. Foreign Direct Investment Suggested Answers and Solutions to End-of-Chapter Questions and Problems 125 16. International Capital Structure and the Cost of Capital...
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...(Sr.G), School Of Management, SRM University. Head of the Department Dr.JAYSHREE SURESH Dean School Of Management SRM University Submitted for the University Examination held on EXTERNAL EXAMINER DECLARATION I hereby declare that this project report entitled “A Study on Forex Risk Management in Indian Overseas Bank” submitted for the award of degree of Master of Business Administration in SRM University is a Bonafide work done by me after completing Final Project Internship Training at Indian Overseas Bank, Chennai branch for a period of 2 months. Place: Chennai Date: MUTHUKUMAR S FINAL YEAR - MBA School Of Management SRM University...
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...RESEARCH PAPER On TRADE FINANCE IN SOUTH ASIA A Comparative study on Mercantile Bank Limited, BANGLADESH By Md Helal Uddin M. Com (Marketing) 1st Class 1st, MBA (Finance & Accounting), First Assistant Vice President, Mercantile Bank Limited, Address: 61 Dilkusha C/A, Dhaka-1000, Bangladesh, Phone: +88029559333 Ext 119 Mobile: +8801 713199820 Fax: +9554410, Email: ranambl@yahoo.com Electronic copy available at: http://ssrn.com/abstract=1010549 August 21, 2007 To The School of Banking & Finance and the Asia Pacific Financial Research Centre at the University of New South Wales Dear Sir or Madam: Subject: TRADE FINANCE IN SOUTH ASIA A Comparative study on Mercantile Bank Limited, BANGLADESH With due respect, I am submitting here with my Research paper on the abovementioned title for the 20 th Australasian Finance & Banking Conference in Sydney on the 12 th , 13 th & 14 th December, 2007. It was a great pleasure to me to work with the topic since I am also serving in Bank. I have tried my best to make the report comprehensive and acceptable. Please, do call me for any clarification regarding the report, if required. Thanking you. Sincerely yours. Md. Helal Uddin Electronic copy available at: http://ssrn.com/abstract=1010549 INTRODUCTION The Trade Finance is science that describes the management of money, banking, credit, investments and assets for international trade transactions. Companies involved with trade finance include...
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...Chapter Exchange Rate Determination and Forecasting QUESTIONS 1. What is the difference between the ex ante and the ex post real interest rate? 10 Answer: The ex post interest rate corrects the nominal interest rate with the realized or ex post rate of inflation; whereas the ex-ante (or expected) real interest rate corrects the nominal interest rate for expected inflation. As a lender, you care about the real return on your investment, which is the return that measures your increase in purchasing power between two periods of time. If you invest $1, you sacrifice $1 1+i real goods now, where P(t) is the price level. In 1 year, you get back , where i is the P(t) P(t+1) nominal rate of interest. We calculate the real return by dividing the real amount you get back by the real amount that you invest. Thus, if rep is the ex post real rate of return and ex post real interest rate, we have 1 + r ep ⎛ 1+i ⎞ ⎜ P(t+1) ⎟ ⎠ = (1 + i ) = ⎝ ⎛ 1 ⎞ ⎛ P(t+1) ⎞ ⎜ P(t) ⎟ ⎜ P(t) ⎟ ⎝ ⎠ ⎝ ⎠ Notice that the real rate of interest depends on the realization of the rate of inflation because P(t + 1)/P(t) = 1 + π(t + 1), where π(t + 1) is the rate of inflation between time t and t + 1. For simplicity, we drop the time notation and simply write 1 + r ep = If we subtract 1 from each side, we have (1 + i) (1 + π) r ep = which is often approximated as (1 + i) (1 + π) i-π = (1 + π) (1 + π) (1 + π) rep = i – π The approximation involves ignoring the term (1 + π) in the denominator...
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...11. endorse- approve or sign 12. federal income tax- the tax you pay the federal government on the income you earn 13. Federal Reserve- institution responsible for creating and tracking all of the country’s money 14. FICA (Federal Insurance Contributions Act) – Social Security tax 15. fixed income/expense- income that does not change month to month 16. gross income- pay before withholdings 17. income- all the money that you earn or receive 18. net income- pay after withdrawals 19. payee-the person a check is written to 20. personal Identification Number (PIN)- identification number used with a debit card 21. purchasing power- the number of goods or services that can be purchased with a unit of currency 22. standard of living- a measure of how comfortable you are based on the things you own 23. state income tax- tax determined by individual states on the income you earn 24. surplus-when more money is earned then spent 25. variable income/expense- Activity 1: Research the Federal Reserve System – Create a short PowerPoint to inform – I will...
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...Measuring/Managing Translation and Transaction Exposure Chapter 10 Lecture Notes Measuring Translation and Transaction Exposure PART I. ALTERNATIVE MEASURES OF FOREIGN EXCHANGE EXPOSURE: Accounting and Economic Risk I. ALTERNATIVE MEASURES A. TYPES 1. Accounting Exposure: arises when reporting and consolidating financial statements require conversion from subsidiary to parent currency. 2. Economic Exposure: arises because exchange rate changes alter the value of future revenues and costs. Accounting Exposure B. Accounting Exposure = Transaction risk + Translation risk [pic] ALTERNATIVE MEASURES OF FOREIGN EXCHANGE EXPOSURE C. Economic Exposure = Transaction Exposure +Operating Exposure Operating Exposure arises because exchange rate changes alter the value of future revenues and costs. PART II. ALTERNATIVE CURRENCY TRANSLATION METHODS (ACCY) I. FOUR METHODS OF TRANSLATION A. Current/Noncurrent Method 1. Current accounts use current exchange rate for conversion. 2. Income statement accounts use average exchange rate for the period. B. Monetary/Nonmonetary Method 1. Monetary accounts use current rate 2. Pertains to - Cash - Accounts receivable - Accounts payable - Long term debt 3. Nonmonetary accounts - Use historical rates - Pertains to: Inventory, Fixed assets, Long term investments 4. Income statement accounts - Use average...
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...Subject: ECO 550 Professor Name: DR. Yasmeen Student Name: Sayed Rohullah Week 3: Check your understanding 1. The forecasting staff for the Prizer Corporation has developed a model to predict sales of its air-cushioned ride snowmobiles. The model specifies that the S vary jointly with disposable personal income Y and the population between ages 15 and 40,Z, and inversely with the price of the snowmobiles P. Based on the past data, the best estimate of this relationship is S= K *YZ/P Where k has been estimated (with the pst data) to equal 100. If Y=$11,000, Z= $1,200, and P=$20,000 a. What value would you predict for S? Answer: The given function is S=K*YZ/P k=100 Y=$11,000 Z=$1,200 P=$20,000 S=100(11000*1200)/20000= $66,000 Problem 5 5. A firm experienced the demand shown in the following table. a. Fill in the table by preparing forecasts based on a five-year moving average, a three-year moving average, and exponential smoothing (with a w = 0.9 and a w = 0.3). The exponential smoothing forecasts may be begun by assuming Ŷt+1 = Yt. b. Using the forecasts from 2005 through 2009, compare the accuracy of each of the forecasting methods based on the RMSE criterion. c. Which forecast would you have used for 2010? Why? 5- year 3-Year Exponential Exponential Actual Moving Moving Smoothing Smoothing Year Demand Average Acverage (W= 0.9) 2000 800 xxxx xxxx xxxx Xxxx 2001 925 xxxx xxxx 687.5 762.5 2002 900 xxxx Xxxx 947.5 932.5 2003 1025...
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...francs, for two points in time: 2/1/XX and three months latter, 5/1/XX. PLEASE READ AND USE THE QUOTES CAREFULLY. I WILL NOT GIVE PARTIAL CREDIT FOR ERRORS DUE TO MISREADING OR USING THE WRONG QUOTES. 2/1/XX 5/1/XX a. If you were a currency speculator, based on the information presented, would you rather take a long or a short position in the three-month forward contract for British pounds on 2/1/XX?: Long b. On 2/1/XX, GM sold a three-month forward contract for 250 million yen to CitiCorp. Based on this transaction, indicate whether each statement listed below is either true or false: (5 points) Statements On 5/1/XX, GM will have to pay $1,875,250 to CitiCorp On 2/1/XX, GM will have to deliver 250 million yen to CitiCorp On 5/1/XX, CitiCorp will have to pay $2,071,250 to GM On 5/1/XX, CitiCorp will have to deliver 250 million yen to GM On 5/1/XX, CitiCorp will have to pay to $2,090,000 GM True or false F F F F F c. Based on the information presented in part (h), what is the total dollar profit or loss in the forward market transaction for GM ? Please indicate the dollar amount, and also if it is a profit or a loss. (2 points): (0.007501 - 0.008285) * 250,000,000 = - $ 196,000 Q2. (4 points) Compared to the Forward market, in the Foreign Currency Futures market: (i) Transaction costs are based on: brokerage fee (ii) Margin is: required (iii) Trading is done via: an exchange (iv) Settlement is done: on a daily basis Q3. (8 points) Listed below are the closing spot and the...
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...Gordon Holmes Ch 14 11/27/12 Problems 1.4, 4.1-4.4, 5.1, 5.3, 5.4 1.4 The reason why businesses accept currency even though its printed on less worthy paper is because the dollar bill is actually a Federal Reserve note and that the Federal Reserve is not required to give gold or silver to for dollar bills. Federal Reserve currency is legal tender in the US, which means that the federal government requires that it be accepted in payment of debts and requires hat cash or checks denominated in dollar bills be use dint he payment of taxes. 4.1 The reason Congress set up a Federal Reserve System in 1913 is because those who deposited money into their accounts weren’t able to get their money back due to the fact that banks loan less than 100 percent of deposits and then loans the rest of the money to someone else. They set this up in order for the nation to have a safer, more flexible, and more stable monetary and financial system 4.2 In order for the Feds to control the money supply, the Feds use these policy tools to control the money supply (1) open the market operations (2) discount policy and (3) reserve requirements. The most important tool is checking account deposits. 4.3 The reason why an open market purchase of Treasury securities by the Federal Reserve increases bank reserves is because when the sellers of the treasury deposit the funds in their bank, the reserves of the banks rise. The reason why an open market sale of treasury securities by the...
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