Forex for a trader
Forex treasury management study material

Forex treasury management study materialCS Professional Financial Treasury and Forex Management. CS Professional Financial Treasury and Forex Management. Category : Financial, Treasury and Forex Management. ? 9800 ?10000 International ? 13800 ? 14000. CS Professional - Financial, Treasury and Forex Management By Sanjay Saraf Sir. Study Materials, Encrypted Videos. Pen Drive OR External Hard Drive WITH 100GB free SPACE TO be provided BY the student. 4GB Ram 3264 Bit processor, Windows 7,8 and 10. Minimum 1 GB graphics card. Does Not Support. Apple products(Mac and Macbook) 30% extra views to the no. of video files. Are you looking for something else ?

You can request a callback. Ours is a top-notch online education forum where you can avail various study guides such as CFA training videos, FRM training materials, CS training materials or you can even enrol for Actuarial Science CT8, Actuarial Science CT for a prospective financial career. CS Professional Treasury & Forex Management (Pen Drive) CS Professional Treasury & Forex Management (Pen Drive) Category : Financial, Treasury and Forex Management. ? 7000 International ? NA. CS Financial Treasury (Pen Drive) By Sanjay Saraf Sir. Study Materials, Encrypted Videos. 4GB Ram 3264 Bit processor, Windows 7,8 and 10. Minimum 1 GB graphics card. Does Not Support. Apple products(Mac and Macbook) 30% extra views to the no. of video files. Are you looking for something else ? You can request a callback. Ours is a top-notch online education forum where you can avail various study guides such as CFA training videos, FRM training materials, CS training materials or you can even enrol for Actuarial Science CT8, Actuarial Science CT for a prospective financial career. How to Prepare CS Professional Financial Treasury and Forex Management.

How to Prepare CS Professional Financial Treasury and Forex Management . In previous post we have given CS Professional Financial Treasury and Forex Management previous exams question papers. Today we are providing tips to prepare CS Professional Financial Treasury and Forex Management. ICSI has given subject wise specific guidance to CS Professional students who are going to write CS Professional exam. Read below !! How to Prepare CS Professional Financial Treasury and Forex Management. The paper ‘Financial, Treasury and Forex Management’ has been designed to provide the conceptual clarity about the financial tools and techniques i. e financial planning, analysis, control and decision making. It provides the knowledge of derivatives, forex and treasury management to enable the students to tackle the practical situation with ease. CS Professional Financial Treasury and Forex Management Important Preparation Tips. The students appearing in this paper should keep following points into their cons ideration: 1. Keep yourself updated by reading standard text books, study material, economic dailies, financial magazines and journals.

2. Engage in adequate practice of practical problems and case studies for scoring good marks. 3. Learn the art of applying the principles of financial management to real business situations. 4. Accessing the websites of SEBI, MCX, NCDEX, NSE and BSE etc. for the updated legislative changes. 5. For updation, Students are advised to refer Student Company Secretary e-bulletin , Chartered Secretary, Bare Act, recommended books and other publications on the subjects. How to Pass CS Professional Exam. Here we are providing subject wise guidance to CS Professional students. See below How to prepare CS Professional Module – 1, Module – 2, Module – 3 and Elective Papers. Click below links. Module I. Module II. Module III. Paper 9. Elective 1 out of below 5 subjects. Share this article ” How to Prepare CS Professional Financial Treasury and Forex Management “to your friends who are going to write CS Professional exam. CS Professional Treasury & Forex Management (Pen Drive) CS Professional Treasury & Forex Management (Pen Drive) Category : Financial, Treasury and Forex Management. ? 7000 International ? NA. CS Financial Treasury (Pen Drive) By Sanjay Saraf Sir. Study Materials, Encrypted Videos. 4GB Ram 3264 Bit processor, Windows 7,8 and 10. Minimum 1 GB graphics card. Does Not Support.

Apple products(Mac and Macbook) 30% extra views to the no. of video files. Are you looking for something else ? You can request a callback. Ours is a top-notch online education forum where you can avail various study guides such as CFA training videos, FRM training materials, CS training materials or you can even enrol for Actuarial Science CT8, Actuarial Science CT for a prospective financial career. CS Professional Financial Treasury and Forex Management. CS Professional Financial Treasury and Forex Management. Category : Financial, Treasury and Forex Management. ? 9800 ?10000 International ? 13800 ? 14000. CS Professional - Financial, Treasury and Forex Management By Sanjay Saraf Sir. Study Materials, Encrypted Videos. Pen Drive OR External Hard Drive WITH 100GB free SPACE TO be provided BY the student. 4GB Ram 3264 Bit processor, Windows 7,8 and 10. Minimum 1 GB graphics card. Does Not Support. Apple products(Mac and Macbook) 30% extra views to the no. of video files.

Are you looking for something else ? You can request a callback. Ours is a top-notch online education forum where you can avail various study guides such as CFA training videos, FRM training materials, CS training materials or you can even enrol for Actuarial Science CT8, Actuarial Science CT for a prospective financial career. Forex treasury management study material. About CTM. The treasury function exists in every business. In small firms it may be part of a department that's responsible for other functions, such as accounting or company secretarial work, etc. but in larger organizations it is likely to be a separate department reporting to the chief financial officer, but it needs to communicate well with the rest of the organization to provide an effective service. The Certificate in Treasury Management (CTM) is designed to provide a detailed insight into the treasury functions and managing treasury activities. It will provide a wide range of managerial, technical and behavioural skills to the participants to prepare themselves for the role of a treasury professional. Where can CTM lead to? The participants of the CTM course may seek to start their career with the following organizations: Banks, NBFCs Mutual Funds, Alternative Investment Funds (AIFs), Portfolio Management Services (PMS), Credit Rating Agencies (CRAs), Foreign Portfolio Investors (FPIs), Dealers, Investment Advisors, Wealth Managers. Programme Highlights. • A 3? months, week-end classroom programme for Working Executives.

• Convenient schedule across 16 Saturday's Sunday's and timings from 10.00 am to 5.30pm. • Core faculty team would be a mix of NISM Faculty and Industry Experts, Professionals, etc. • Interface with industry experts. • Globally benchmarked curriculum. • Policy-research based inputs, based on past experience. • Inputs on regulation from senior officers from SEBI and RBI. Career in Forex and Treasury Management. When looking for a job in today’s corporate sector, a specialized MBA can land you in the most high profile and exciting job profiles in the world trade. Today, one of the best places for the same is Forex and Treasury Management. It is one of those jobs where stakes are high and therefore remunerations, higher. Treasury management is the creating and governing of company policies and procedures that ensures management of financial risks successfully. Forex, i. e. Foreign Exchange is necessary for global business transactions. Conversion of domestic currency by consumers, to make overseas purchases, while trading internationally for domestic currency by businesses is what Forex management looks after. So basically, treasury management of an enterprise’s holdings should be understood as how the goal of managing the firm’s liquidity i. e. cash flow, and mitigating its operational, reputational and yes how financial risks are met. Forex comes within the oeuvre of treasury management. Why Should Treasury Management Interest You? Treasury Management includes a firm’s. collections, concentration, disbursements, funding activities, and investments. It also includes trading in bonds, currencies, financial derivatives and looking after whole of the financial risk management. Therefore, it’s fertile.

It provides great opportunities for young professionals to engage in trading and financial management that involves good communication, quick thinking and a lot of smart work. The whole ‘thinking out of the box’ kinds can rejoice because the volatile nature of the changing economic scenes mean that company policies and activities are to be constantly updated to minimise risk of heavy financial losses and secure optimal profitability. It is imperative to keep business margins insulated from the volatility of the market. Apart from financial risk management, treasuries are also expected to look after financial supply chain management. The employees keep check on the financial inflow and outflow. They list all amounts to be received which will increase treasury of the firm. Under this management, they estimate all financial risks for investment of cash to invest profitably, optimize their company’s liquidity, and reduce or enter into hedges against its financial risks. Also, these make long term financial plans and implement them. They need to anticipate what can go wrong and have the back up and solutions ready. When businesses want to expand their reach, it is the treasury management that plans and enables the expanse through quantified and qualitative research, data, analysis and estimations.

They take part in business mergers and acquisitions, of assets and otherwise. Banks, on the other hand, have large treasury management profiles hosting many clients. Today, many smaller banks are replacing larger banks on the provision of treasury management products and services by expanding newer functions and offerings, everything readily customized according to the needs of an emerging smaller clientele pool. IT too plays a huge role today by providing software that can help firms gain complete transparent control over the financial activities of the company and automate critical processes. Control over these complex demands helps ensure adequate financial liquidity to drive growth and promote innovation. Where does Forex Management Step in Here? Treasury management involve the sub function of buying and selling foreign currencies in several companies, especially in MNCs. The entire management of a company’s foreign exchange and investments falls under the duties and functions of the treasury management department. Foreign exchange management is required to follow current events that translate into changing exchange rates on world trade forum to identify the distinct risks of transacting on a trans-national platform. It involves successful currency trading practices in firms that increase profit quotients and buy power.

Forex Managements may use currency derivatives and diversification to keep check on risks and preserve profits. Proper Forex management accounts for these transactions, while anticipating shifts in currency valuations for delivering and accepting currencies at fluctuating exchange rates. So, this Can Open a Lot of Doors for You from entry level to board level, there are a huge variety of roles and. job titles, some of those are: Treasury analysts and accountants Risk managers and financial analysts Treasury operations and Tax directors Managing directors, Company secretaries Chief financial officers and Chief executive officers (CEOs) There are also good opportunities in this arena for software professionals for outsourcing software and to look after the mechanized aspects of modern trading practices. How Much Do they Earn? Salaries may vary according to the nature of the company, professional qualifications and level of experience of the applicants, and also the position in the company. Starting at a minimum of Rs 4 lakh per annum, it goes way upwards to 6 digit numbers. Forex and Treasury Management offer a diverse and lucrative career that can set you on the road to acquire some of the most high profile jobs in business and finance. They also push you towards international opportunities. It is the crux of all trading activities, tying everything together, therefore always in high demand and focus.

Forex Certificates: for the foreigners to be legal. The term Foreign Exchange Certificates or FEC is commonly known as forex certificates . It can be called a kind of currency which is often used by the government as the surrogated currency of the country. But it is applicable only in those countries that have complied to subject their national currencies to exchange controls. National currency cannot be treated as forex certificates if it is convertible. The countries like USSR, Myanmar, China, North Korea, East Germany, Ghana, Poland, Czechoslovakia and Cuba are some of the countries to have employed forex certificates in the past. Foreign Exchange Certificates system has been introduced because in many countries it was illegal for the foreigners to keep the currency of that country. Forex certificates could be bought from the tourists' origin country like one does for traveler's cheques. These are issued by the central banks at least at 20% above the value of the national currency of the country you are planning to visit. In most of the cases, the exchange rate of the forex certificates is higher than the currency of the country itself. This rate is determined by the central bank of that country.

The old forex certificates are bought and sold as collectibles. You can visit shopping websites like ebay. com and find these certificates available at a particular price. For example, an FEC of 100 Yuan UNC can be purchased for $135. In order to become a certified Forex broker andor trader, the interested individual has to jump through various hoops. One of these, of course, is studying for, and clearing, the Forex certification exam, without which you cannot become a licensed Forex trader, anywhere in the country. There is not, as yet, any single standardised test for all Forex traders. The ACI (Association Cambiste Internationale) offers Forex course that might be closest to an international certification. There are also various certification courses implemented by different countries - the FSA in the U. K. and the Series 3 license in the U. S. come closest to a proper certification course for Forex trading in those countries - which serve as qualifications for the Forex brokers of the country. It should be noted, however, that personal trading on the foreign exchange market requires no qualifications, or certifications. It is only Forex brokers who require proper Forex certification, and even then, sometimes the track record and PL statements are the best certifications a Forex broker can possess. This is not to say, however, that proper qualifications go amiss.

For aspiring Indian would-be brokers, the best bet is to write the examinations offered by the IBS University, or take the Forex and Treasury Management Course offered by the ICAI (Institute of Chartered Accountants of India): the degree offered would serve as Forex certification, and aid in getting a good position in a prestigious brokerage. The FTM Course aims to impart in students: An appreciation of the various changes that occur in the global financial market, a solid knowledge of the development of theory and practice that explains and manages the financial risk created by these changes. An understanding of the complex nature of Forex management that will enable them to conquer the foreign exchange market. The ability to identify and evaluate the risks attending trading, because of fluctuating exchange rates. The ability to evaluate and apply alternative methods in managing Forex trading - after all, the Forex broker lives by his wit and must always know how to manage an unprecedented situation. The ability to hedge Forex risks by using Forex derivatives, if and when so required. The ability to swiftly make short-term financial decisions - knowing when to invest and when to cut out are equally important in the dealings of the Forex trader, in whose life a minute's hesitation could make a difference of millions of dollars. The ability to manage interest risk by using Forex derivatives, as also the ability to use bond market instruments and money market instruments. The ability to understand the linkages between the Forex market and the domestic money market, and use those connections to one's benefit - the successful Forex trader concentrates almost exclusively on the currency of a single nation, closely studying its daily fate, and this knowledge helps him reap great profits. An understanding of the ethical issues surrounding money trading, both on domestic and foreign exchange markets - it's easy and tempting to cut corners, but the broker's reputation, and livelihood depends ultimately on his ethic; nobody wants to invest their money with a dishonest man. The FTM course at ICAI, therefore, is probably the best Indian aspirants can hope for. Not only does it give the student a solid theoretical base - among the papers are the features, development and importance of the Forex market - but it also imparts practical skills which every player on the foreign exchange market requires, be he someone playing with their own funds for their own profit, or a certified broker, high-up on the employment ladder, gambling millions on the market. FEC is a very popular concept in countries like Myanmar, China and Hong Kong.

Sometimes, owing to certain factors, the price of FEC crosses the value of US Dollar. In Myanmar, this happened in January 2010 when Rangoon Foreign Exchange Market marked one US Dollar was equivalent to 1,010 Kyat while existing price of FEC was Kyat 1,025. Difference of 15 units of Kyat was something unprecedented. One of the reason speculated for this was its high demand in current market. The commodities that need extensive payments like petroleum or any other fuel, SIM cards for the cell phones or tickets of airlines have been made in FEC. FEC of Kyat is useless in foreign countries hence price of FEC had been increased so that people keep it. According to the military regime of Myanmar, there are four denominations of USD is available in FEC-1, 5, 10 and 20. It is also guaranteed that face value of both will be same. Yet, in most of the cases, value of USD remains higher than the forex certificates . Ministry of Communication, Postal and Telegraph of Myanmar have ordered to sell the products like GSM mobile SIM cards and CDMA telephones for coastal-use in FEC. Forex certificates play an important role in tourism industry. In China, there is no limit to the amount of foreign currency or exchange bills a tourist can bring into the country, provided the amount is declared. But while returning RMB or Renmibi, that is as the Chinese currency is known in China, must be converted back to its original currency. Tourist may required to show the converted amount along with proper forex certificates because a foreigner cannot take more than RMB 600 with him or her back to the country. Five Steps to Managing FX Risk. by Helen Sanders, Editor. There are some aspects of today’s treasury function that have really only emerged over the past decade: financial supply chain management, enterprise risk management etc. Some responsibilities have been core to the role of treasury ever since the first departments were set up in the 1970s, of which foreign exchange (FX) risk management is one. Indeed, the first treasury association, the Association of Corporate Treasurers (ACT), was founded in 1979 as corporations set up treasury functions in response to heightened market volatility, relaxation of exchange controls in 1976 in the UK, and international expansion. Forty years on, have treasurers ‘cracked’ the code to effective FX risk management, and what new opportunities now exist? How do smaller corporations in particular avoid adding complexity when seeking to reduce risk?

In exploring this theme, I am delighted to be joined by Martin Keller, Head of Product Management, Mittelstandsbank, Commerzbank AG. In addition, Justin Meadows, CEO and co-founder of MyTreasury offers some engaging new insights into trends and opportunities for online FX dealing. The business imperative. Given the potential impact that adverse FX movements can have on cash flow though value attrition, liquidity as a result of cash ‘trapped’ in foreign currencies, and ultimately on corporate results, FX risk management is a fundamental issue for treasurers. Even the largest global corporations are not immune to the effects of negative volatility. Despite announcing a record quarter in Q4, 2014, Apple’s CEO Tim Cook commented that “Our results would have been even stronger, absent fierce foreign exchange volatility” which CFO Luca Maestri added amounted to around 4% of quarterly revenues. Some would argue that as most companies operating in a sector with the same base currency will be subject to the same market effects, they only need to manage their risk to the same degree as their competitors. With greater analyst scrutiny (for example, FX was the main topic that analysts wanted to discuss during the Apple quarterly results briefing despite the eye-watering results) and growing competition globally however, treasurers and CFOs cannot be complacent about managing their FX risk. In Deloitte’s 2015 Global Corporate Treasury Survey, volatility and cash repatriation were identified as the greatest challenges facing treasurers, each of which was noted by 50% of participants, at least 10% more than issues such as cash visibility (40%), treasury technology (40%), entering restricted markets (24%) and managing liquidity (29%). This is not surprising, given the high levels of volatility in both the FX and commodity markets, continuing international expansion resulting in exposure to a growing number of currencies, and geopolitical insecurity in many parts of the world. Furthermore, the ACT’s The Contemporary Treasurer 2015 study shows that 83% of treasuries produce board reporting on risk management (which includes FX), emphasising the importance and visibility of treasury’s role in FX risk management. An emerging focus on FX risk. Given the scale of the challenge, are treasurers focusing enough on this area? In some cases, it appears that treasurers have paid more attention to liquidity risk over the past few years, with the exception of large multinational corporations and those with particularly large currency or commodity exposures. This is starting to change, however. According to the ACT study referenced earlier, treasurers are spending an average of 39% more time on risk management in 2015 than 2014. This is also the experience we are seeing amongst our readers, and amongst the banks that support them.

For mid-cap and smaller corporations in particular, the issue is how to address FX risk efficiently, particularly given resourcing and technology constraints. As Martin Keller, Commerzbank says, “Not only has the past six months been a period of significant market volatility, but treasurers recognise that this is a situation that will remain. As a result, clients want help in collating market information, and determining what to do with it. They are then seeking to design and implement a risk management strategy that makes sense for their business, and ensure the relevant controls are in place.” “It can be difficult for many companies, particularly mid-cap and smaller corporations, to design and implement an FX risk management strategy that is appropriate to their business. Ultimately, the aim is to secure the underlying business but it is not always clear how this should translate into a hedging strategy. Furthermore, in smaller organisations that lack a defined treasury function, it is not always clear where responsibility for either strategy definition or execution should lie.” So what are the steps to an effective and sustainable FX risk management strategy? #1. Taking responsibility. For corporations with a defined treasury function, responsibility for FX policy definition is usually clear, and the need to manage FX risk at a group level is one of the factors in deciding to centralise treasury. As Keller suggests, “As companies of all sizes expand their activities internationally, their FX risk often becomes more difficult to manage, particularly where subsidiaries buy and sell in foreign currencies. Larger multinationals overcome this growing scale and complexity of FX exposure by centralising FX risk management into regional or global treasury centres with specialist systems and specific expertise.

” He continues however, “For smaller companies without a central treasury function, this is more challenging, as the process of information gathering, designing and executing a hedging strategy, and implementing appropriate controls takes significant resource, particularly if responsibilities are shared across different functions or subsidiaries.” In some cases, even where treasury policy is determined centrally, execution may be dispersed more widely, particularly in companies with a more decentralised treasury approach, and or where complex local market conditions make it more appropriate for local entities to manage exposure to a particular currency due to its volatility, currency controls or local liquidity conditions. Consequently, every company needs a clear definition of where responsibilities for defining and executing FX strategy should lie. Where these are disseminated, it makes sense to try to use a common platform to maintain a global view over exposures and hedging transactions. Forex treasury management study material. 12008FTFM P. T. O.n n. Time allowed : 3 hours Maximum marks : 100n n. Total number of questions : 7 Total number of printed pages : 7n n. NOTE : 1. Answer FIVE questions including Question No.1 which is compulsory.nAll working notes should be shown distinctly.n n. 2. Tables showing the present value of Re.1 and the present value of an annuitynof Re.1 for 15 years are annexed.n n. 1. Attempt any four of the following :n n. (i) “Financial leverage is a fair weather friend.” Discuss.n n. (ii) “The risk of the portfolio which combines both a risky and a risk-free asset willnbe reduced to the standard deviation of the risky security, weighted for itsnproportionate value in the portfolio.” Do you agree ? Discuss.n n. (iii) “Alpha is an indicator of the extent to which the actual return of a stock deviatesnfrom those predicted by its beta value.” Discuss.n n. (iv) “An investor suffers dilution of financial interest when he does not exercise hisnpre-emptive rights.

” Comment.n n. (v) “Derivatives are mainly used to control risk to increase returns.” Comment.n n. (5 marks each)n n. 2. (a) An exporter is a UK based company. Invoice amount is $3,50,000. Credit periodnis three months. Exchange rates in London are :n n. Spot Rate ($£) 1.5865 – 1.5905n n. 3-Month Forward Rate ($£) 1.6100 – 1.6140n n. Rates of Interest in Money Market :n n. Deposit Loann n. Compute and show how a money-market hedge can be put in place. Compare andncontrast the outcome with a forward contract.n n. 12008FTFM Contd. n n. 334n (b) Elite Ltd. manufactures a product from a raw material, which is purchased atn n. Rs.100 per kg. The company incurs a handling cost of Rs.300 plus freight ofnRs.325 per order. The incremental carrying cost of inventory of raw material isnRe.0.50 per kg. per month. In addition, the annual cost of working capital financenon the investment in inventory of raw material is Rs.4 per kg. The annualnproduction of the product is 1,00,000 units and 2 units are obtained from one kg.nof raw material.n n. (i) Calculate the economic order quantity (EOQ) of raw materials.n n. (ii) Advise how frequently the orders for procurement of raw materials should benplaced.n n. (iii) If the company proposes to rationalise placement of orders for procurementnof raw materials on quarterly basis, what percentage of discount in the pricenof raw materials should be negotiated ?n n. 3. (a) At different levels of financing, a firm’s weighted average cost of capital (WACC)nis as follows :n n. Alternative Level of WACC NPVn n. Financing (%) (Rs.)n n. 1 12,00,000 10 5,00,000n2 18,00,000 12 9,00,000n3 28,00,000 16 15,00,000n4 36,00,000 21 13,00,000n n. Find out —n(i) Value added at each level of financing.

n n. (ii) The optimal size of capital budget.n(iii) Weighted average cost of capital at optimal level.n n. (2 marks each)n n. (b) Efficient Motors Ltd. (EML), a producer of turbine generators is in this situation :nEarning before interest and taxes (EBIT) = Rs.40 lakh; Tax rate (T) = 35%; Debtnoutstanding (D) = Rs.20 lakh; Rate of interest = 10%; Cost of equity (Ke) = 15%;nShares of stock outstanding (No.) = 6,00,000; and Book value per share = Rs.10.nSince EML’s product market is stable and the company expects no growth, allnearnings are paid out as dividends. The debt consists of perpetual bonds. Whatnis the EML’s earnings per share (EPS) and its price per share P0 ? nn n. 12008FTFM P. T. O.n n. EML can increase its debt by Rs.80 lakh to a total of Rs.1 crore using the newndebt to buy-back and retire some of its shares at the current price. Its interestnrate on debt will be 12% (it will have to call and refund the old debt), and its costnof equity (Ke) will rise from 15% to 17%. EBIT will remain constant. Should EMLnchange its capital structure ?n n. (c) During a year, the price of British Gilts (face value £100) rose from £103 to £105nwhile paying a coupon of £8. At the same time, the exchange rate moved fromn$£ 1.70 to $£ 1.58. What is the total return to an investor in US who investednin the above security ?n n. 4. Distinguish between any four of the following :n n. (i) ‘Interest swap’ and ‘currency swap’.n n. (ii) ‘Financial distress’ and ‘insolvency’.n n. (iii) ‘Net present value’ and ‘profitability index’.n n. (v) ‘Commodity futures’ and ‘financial futures’.n n. (5 marks each)n n. 5. (a) Prepare cash budget of Bipasha Ltd. with the data furnished below :n n. Particulars Quarter I Quarter II Quarter III Quarter IVn(Rs.) (Rs.) (Rs.) (Rs.)n n. Opening cash balance 10,000 — — —n n. Collection from customers 1,25,000 1,50,000 1,60,000 2,21,000n n. Purchase of material 20,000 35,000 35,000 54,200n n. Other expenses 25,000 20,000 20,000 17,000n n. Salaries 90,000 95,000 95,000 1,09,200n n. Purchase of machinery — — — 20,000n n. The company desires to maintain a cash balance of Rs.15,000 at the end of eachnquarter. Cash can be borrowed or repaid in multiples of Rs.500 at an interest ratenof 10%. Management does not want to borrow cash more than what is necessary nn n. 12008FTFM Contd.

n n. 334n and wants to repay as early as possible. In any event, loans cannot be extendednbeyond four quarters. Interest is computed and paid when the principal amountnis repaid. Assume that borrowings take place at the beginning and payments arenmade at the end of quarter.n n. (b) The prevailing risk-free rate of interest in 10-Year GOI Treasury Bonds is 5.5%.nThe average risk premium is 8%. The beta of the company is 1.1875. Thencompany now wants to take up a project requiring an investment of Rs.75 crorenwith a debt-equity ratio of 20%. The beta of this project is 1.4375. The debt cannbe raised at an interest rate of 9.5% upto first Rs.10 crore and @ 10% for the restnof the amount. Find out the marginal cost of capital, if the tax rate is 35%.n n. 6. Exacta Ltd. is considering the replacement of its existing machine by a new one whichnis expected to cost Rs.2,70,000 with a life of 5 years and salvage value being Rs.20,000.nThe machine will yield annual cash revenue of Rs.5,70,000 and annual cash expensesnof Rs.2,96,000.n n. The existing machine has a book value of Rs.92,000 and can be sold for Rs.46,000ntoday. It has a remaining useful life of 5 years. Cash revenues will be Rs.4,50,000nand associated cash expenses will be Rs.3,20,000 per annum. The existing machinenwill have a salvage value of Rs.4,600 at the end of 5 years.n n. Exacta Ltd. is in a 35% tax bracket and writes off depreciation @ 25% per annum onnwritten down value (WDV) method. Exacta Ltd. has a target debt-equity ratio of 20%.nThe company in the past has raised debt at 12% and it can now be raised at 10%.nExacta Ltd. follows the dividend discount model to estimate the cost of equity capital.nLast year the company paid a dividend of Rs.1.85 per share.

The current market pricenof the company’s equity share is Rs.20 per share. A growth rate of 8% per annum isnanticipated. (Ignore capital gain tax.)n n. (i) Investment required on incremental basis.n n. (ii) Incremental depreciation per year.n n. (iii) Weighted average cost of capital.n n. (iv) Computation of present worth factors.n n. (v) Before tax incremental cash flows based on revenue and expenses.n n. (vi) Incremental terminal cash flow.n n. (vii) Computation of NPV.n n. (viii) Should the new machine be acquired ?

Why ?n n. 12008FTFM P. T. O.n n. 7. Write notes on any four of the following :n n. (i) Gilt-edged primary marketn n. (ii) Essential elements of forex managementn n. (iii) Yield curve and treasury managementn n. (iv) Securitisation of financial assetsn n. (v) Participants in derivatives market.n n.



Articles:

  • Forex treasury management study material