SUBJECT CONTEMPORARY ISSUES IN INTERNATIONAL FINANCE FROM ISLAMIC PERSPECTIVE
LECTURER Nurul Anisak, S.E.I., M.Sc.Fin
TIME 120 Minutes
DAY/DATE Thursday, 2nd January 2020
VENUE PS. 304
DEPT/PROGRAM Economics - IPIEF
TYPE/RULE Closed Book
- Please pray before and after doing your exam!
- Read carefully every single question, and provide your answers on the available sheets!
- You may use dictionary to help answer your exam!
- Any form of cheating is NOT entertained. Therefore, this exam is considered VOID and will be calculated in your final results.
ANSWER 5 OUT OF 8 QUESTIONS!
1. Hedging Techniques for Payable. Please solve this case! (20 marks)
A. Apple Inc., a U.S. technology firm, plans to use a money market hedge to hedge its payment of 3-million-pound sterling in one year. The U.S. interest rate is 7 percent, while the U.K. interest rate is 12 percent. The spot rate of the Pound sterling is $.85, while the one-year forward rate is
$.81. Determine the amount of U.S. dollars needed in one year if a money market hedge is used.
B. Using the information in the previous question, would A. Apple Inc.be better off hedging the payables with a money market hedge or with a forward hedge?
C. Using the information about Apple from the first question, explain the possible advantage of a currency option hedge over a money market hedge for Apple Inc. What is a possible disadvantage of the currency option hedge?
2. Explain the concept of Interest Rate Parity (IRP), Purchasing Power Parity (PPP) and the International Fisher Effect (IFE) by comparing them! (20 marks)
3. A. Explain the concept of triangular arbitrage and the scenario necessary for it to be plausible! (10 marks)
FINAL EXAM, ODD SEMESTER 2019/2020
INTERNATIONAL PROGRAM FOR ISLAMIC ECONOMICS AND FINANCE (IPIEF) DEPARTMENT OF ECONOMICS, FACULTY OF ECONOMICS AND BUSINESS
UNIVERSITAS MUHAMMADIYAH YOGYAKARTA
B. Assume the following information: (10 marks)
CITIBANK HSBC BANK Bid price of Australian
dollar
$.401 $.398
Ask price of New Zealand Australian dollar
$.404 $.400
Given this information, is locational arbitrage possible? If so, explain the steps involved in locational arbitrage, and compute the profit from this arbitrage if you had $1 million to use. What market forces would occur to eliminate any further possibilities of locational arbitrage?
4. Could you explain how bitcoin works from Islamic Financial Technology (i-FinTech) perspective? Is bitcoin lawful (permissible) according to the shariah (Islamic Law)? (20 marks) 5. Assume the following information: (20 marks)
QUOTED PRICE Value of Ringgit
Malaysia in U.S. dollars
$0.20
Value of British Pound in U.S. dollars
$1.60
Value of British Pound in Ringgit Malaysia
MYR8.1
Given this information, is triangular arbitrage possible? If so, explain the steps that would reflect triangular arbitrage, and compute the profit from this strategy if you had $10,000 to use. What market forces would occur to eliminate any further possibilities of triangular arbitrage?
6. A. Explain how an MNC’s economic exposure and translation exposure can be hedged! (10 marks)
B. Why should capital budgeting for subsidiary projects be assessed from the parent’s perspective? What additional factors that normally are not relevant for a purely domestic project deserve consideration in multinational capital budgeting? (10 marks)
7. Assume the following information: (20 marks) Spot rate of Canadian dollar
$.80
90-day forward rate of Canadian dollar
$.79
90-day Canadian interest rate
4%
90-day U.S. interest rate 2.5%
Given this information, what would be the yield (percentage return) to a U.S. investor who used covered interest arbitrage? (Assume the investor invests $1 million.) What market forces would occur to eliminate any further possibilities of covered interest arbitrage?
8. Could you identify the international transactions that are accepted under Islamic principles both in the foreign currency market and Balance of Payment Account! (20 marks)
--- DO THE BEST AND LET GOD DO THE REST---
