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Mba ZG560 Ec-3r Second Sem 2023-2024

The document outlines the comprehensive examination details for the MBA course 'Global Financial Markets' at Birla Institute of Technology & Science, Pilani. It includes information on the exam format, weightage, duration, and specific questions related to financial concepts such as bond pricing, equipment financing, risk management in international trade, acquisition valuation, and investment strategies. The exam is open book and consists of five questions that require analytical and financial calculations.

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11 views2 pages

Mba ZG560 Ec-3r Second Sem 2023-2024

The document outlines the comprehensive examination details for the MBA course 'Global Financial Markets' at Birla Institute of Technology & Science, Pilani. It includes information on the exam format, weightage, duration, and specific questions related to financial concepts such as bond pricing, equipment financing, risk management in international trade, acquisition valuation, and investment strategies. The exam is open book and consists of five questions that require analytical and financial calculations.

Uploaded by

srujana.g
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Birla Institute of Technology & Science, Pilani

Work-Integrated Learning Programmes Division


Second Semester 2023-2024

COMPREHENSIVE EXAMINATION
(EC3 Regular)

Course No. : MBA ZG560


Course Title : Global Financial Markets
Nature of Exam : Open Book
Weightage : 45% No. of Pages =2
Duration : 2½ Hours No. of Questions = 5
Date of Exam : 17/5/2023 (AN)
Note:
1. Please follow all the Instructions to Candidates given on the cover page of the answer book.
2. All parts of a question should be answered consecutively. Each answer should start from a fresh page.
3. Assumptions made if any, should be stated clearly at the beginning of your answer.

Q.1 The YTM on the bond is 5% face value is Rs. 10 and the coupon rate is 2% with annual
coupons.
(a) What can you say about the price of the bond?
(b) What is its price in case of annual payments, if it is a 30-year bond and has an
aggregate of 10,000 bonds issued.
(c) What is the price of the bond if the payment has to be made half yearly. [9]

Q.2 (a) An Indian textile company imports equipment for €2 million on May 1, 2024. The expected
useful life is 6 years, and the salvage value is estimated at zero. The company intends to replace
the equipment identically. For this purpose, the company creates a special fund with annual
equal payments at the end of each year during the lifetime. Cost of capital and earnings of the
fund is 10% per year. Compute the annual payment into the fund. [6]

Q.2 (b) How would the amount of annual payment change if the price of the machinery increases by 10%
yearly. [3]

Q.3 Raghu who has a flourishing restaurant chain in India opened a chain of 56 India Restaurants in
Europe. He buys raw materials from India. He realizes that the prices of raw materials such as soya
beans fluctuate and hence there is high risk. He also needs to take a loan of Euro 5 lakhs at a floating
rate.

1. What is the natural position when it comes to buying soya beans? How can he hedge his position?
(3)
2. His Chief Financial Officer advises him against hedging his position, as he could make losses in the
market, while his Chief Risk Officer wants him to hedge his position. What would your advice be to
Raghu. (3)
3. The Chief Financial Officer advises him to take a loan in Europe. However, the Chief Risk Officer
informs him that he is increasing his risk as interest rates in Europe may go up and the Indian
Currency may weaken. Advice how he can use swap to hedge his position. (3)

Q.4 A firm is considering acquiring a competitor. It is planning to remain in business for the next 5 years.
Later it would sell it away to another company, when there are growth prospects still left in the
business. Currently, the post-tax and post depreciation profits are Rs.140 crores. The company paid
interest to the tune of Rs.50 crores. The current straight-line depreciation amount, which would last
another 10 years, is Rs.50 crores. Every additional CAPEX is going to be depreciated on straight-line
basis at rate of 10% p.a. The increase in working capital this year is Rs.20 crores.

The firm budgets Rs.100 crores of capex each year for the next 5 years, to be invested at the
beginning of the year. Whatever debt is repaid each year would be raised afresh. Both additions to
working capital and EBIT are expected to grow at the rate of 10% p.a. for the next 5 years and from
the 6th year onwards the free cashflows to the firm are expected to grow constantly at 5% forever.
The D:E ratio of the firm is 1:1 and the cost of debt is 12%, tax rate is 30%. Equity Beta of the firm is
1.5, the relevant risk-free rate is 6%, and market risk premium is 8%. What is the value of the firm as
on today? (Round off your calculations to the nearest full crore of rupees. [9]

Q.5 Ramesh, your client is planning to invest R. 1 cr. of his savings. His wife advises him to invest in
Indian stocks while his financial adviser wants him to build a global portfolio. Write the pros and
cons of each of the two alternatives. [9]

*******

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