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1. Dear students get fully solved assignments
Send your semester & Specialization name to our mail id :
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AEREN FOUNDATION’S Maharashtra Govt. Reg. No.: F-11724
Case Study Project
Total Marks: 80
SUBJECT :FOREIGN EXCHANGE MANAGEMENT
N. B.: 1)Attempt any Four Questions
2)All questions carries equal marks.
Case 1
(10 Marks)
AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-
SCHOOL

2. Mr Oak pays US $ 2000 to buy a December 103 Call option on a US
$ 1,00,000. US Treasury Bond at anexercise price of US $ 103. If the
price rises above US $ 103, Mr Oak will gain from the difference and
ifthe price falls below US $ 103, the maximum amount that Mr Oak
may lose is the amount of Premium paid.
Question. 1. Explain the term ‘Speculation’?
Answer:Speculationisthe practice of engagingin risky financial transactions in an attempt to profit
fromfluctuationsinthe market value of a tradable good such as a financial instrument, rather than
attempting to profit from the underlying financial attributes embodied in the instrument such as
capital gains,interest,ordividends.Manyspeculators pay little attention to the fundamental value
of a securityandinsteadfocuspurelyon price movements. Speculation can in principle involve any
tradable good or financial instrument. Speculators are particularly common in the markets for
stocks, bonds, commodity futures, currencies, fine art, collectibles, real estate, and derivatives.
Speculators play one of four primary roles in financial markets, along with hedgers who engage in
transactionsto offset some other pre-existing risk, arbitrageurs who seek to profit from situations
where fungible instruments trade at different prices in different market segments, and investors
who seek profit through long-term ownership of an
Question.2. Define Risk Management in detail?
Answer:Riskmanagementisthe identification,assessment,andprioritizationof risks(defined in ISO
31000 as the effect of uncertainty on objectives) followed by coordinated and economical
application of resources to minimize, monitor, and control the probability and/or impact of
unfortunate eventsortomaximizethe realization of opportunities. Risk management’s objective is
to assure uncertainty does not deflect the endeavor from the business goals.
Riskscan come from varioussourcesincludinguncertaintyinfinancial markets, threats from project
failures(atanyphase indesign,development,production,orsustainmentlife-cycles),legal liabilities,
creditrisk,accidents,natural causesanddisasters,deliberate attack from an adversary, or events of
uncertain or unpredictable root-cause. There are two types of events i.e. negative events can be
classified as risks while positive events are classified
Question. 3. Define derivatives in detail?
Answer:A derivative is a security with a price that is dependent upon or derived from one or more
underlying assets. The derivative itself is a contract between two or more parties based upon the

3. asset or assets. Its value is determined by fluctuations in the underlying asset. The most common
underlyingassetsincludestocks,bonds,commodities,currencies,interestratesandmarketindexes.
Derivativeseitherbe traded over-the-counter (OTC) or on an exchange. OTC derivatives constitute
the greaterproportionof derivativesinexistence and are unregulated, whereas derivatives traded
on exchangesare standardized.OTCderivativesgenerallyhave greaterriskforthe counterpartythan
do standardized derivatives.
Question.4. Suggest Mr Oak to hedge the above transaction
position?
Answer:Mr Oak pays US $ 2000 to buy a December 103 Call option on a US $ 1,00,000. US Treasury
Bond at an exercise price of US $ 103. If the price rises above US $ 103, Mr Oak will gain from the
difference and if the price falls below US $ 103, the maximum amount that Mr Oak may lose is the
amount of Premium paid. They should prefer hedge.
A hedge is an investment position intended to offset
Case 2
(10 Marks)
Suppose United States dollar is relatively stable while the Indian
rupee is suffering from sudden inflationarypressures. As the Indian
Rupee buys less in the domestic economy. Indian and their banking
institutionsseek the safe haven of the United States Dollars to
maintain the purchasing power of their liquid resources.The
demand for US dollars created by Indian‘s buying them with Indian
Rupees makes the US dollars morevaluable in terms of the rupees
and drives up the exchange rate. The United States Dollars
commands moreRupees in an exchange of currency.
Question. 1.Define the meaning of Foreign Exchange?

4. Answer:Foreign exchange is the exchange of one currency for another or the conversion of one
currency into another currency.
Foreignexchange alsorefersto the global market where currencies are traded virtually around the
clock. The largest trading centers are London, New York, Singapore and Tokyo. The term foreign
exchange is usually abbreviated as "forex" and occasionally as "FX."
Foreign exchange transactions encompass everything
Question. 2. What are the Exchange rate risks?
Answer:Inthe presenteraof increasingglobalizationandheightened currency volatility, changes in
exchange rates have a substantial influence on companies’ operations and profitability. Exchange
rate volatility affects not just multinationals and large corporations, but small and medium-sized
enterprisesaswell, even those who only operate in their home country. While understanding and
managing exchange rate risk is a subject of
Question. 3. What are the factors influencing exchange rate risks?
Answer:Foreign Exchange rate (ForEx rate) is one of the most important means through which a
country’srelative levelof economichealthisdetermined.A country'sforeignexchange rate provides
a window to its economic stability, which is why it is constantly watched and analyzed. If you are
thinkingof sendingorreceivingmoneyfromoverseas,youneedtokeep a keen eye on the currency
exchange rates.
Question. 4. Comment ‘The relationship between currencies is not
always stable and therefore creates exchange raterisk’.
Answer:Anexchange rate is the rate at which one currency can be exchanged for another. In other
words, it is the value of another country's currency compared to that of your own. If you are
traveling to another country, you need to "buy" the local currency. Just like the price of any asset,
the exchange rate is the price at which you can buy that currency. If you are traveling to Egypt, for
example, and the exchange rate for U.S. dollars is 1:5.5 Egyptian pounds, this means that for every
U.S. dollar,youcan buyfive anda half Egyptianpounds.Theoretically,identical assets should sell at
the same price in differentcountries, because the exchange rate must maintain the inherent value
of one currency against the other.

5. Case 3
(10 Marks)
In order to operate successfully, business communities need
computer systems that can accurately record andsummarize their
business transactions. This type of information technology is called
a Business InformativeSystem. Business Information Technology or
Systems have become an essential component of everybusiness
organization. It would be very difficult to successfully run a
business without some type ofinformation system.
Question. 1. How Business Information System support any
business?
Answer:Aninformationsystem(IS) isanyorganizedsystem for the collection, organization, storage
and communication of information. More specifically, it is the study of complementary networks
that people and organizations use to collect, filter, process, create and distribute data.
A computer information system is a system composed of people and computers that processes or
interpretsinformation. The term is also sometimes used in more restricted senses to refer to only
the software used to run a computerized database or to refer to only a computer system.
Information system is an academic study of systems with
Question. 2. Explain the components of Business Information
System?
Answer:There are various types of information systems, for example: transaction processing
systems, decision support systems, knowledge management systems, learning management
systems, database management systems, and office information systems. Critical to most
informationsystemsare informationtechnologies,whichare typicallydesignedtoenable humansto
perform tasks for which the human brain is not
Question. 3. Distinguish between computer hardware and
software?

6. Answer:Computerhardware isanyphysical deviceusedin or with your machine, whereas software
isa collectionof code installedontoyourcomputer'sharddrive.Forexample,the computermonitor
you are using to read this text and the mouse you are using to navigate this web page is computer
hardware. The Internet browser that allowed you to visit this page and the operating system that
the browser is running on is considered software.
All software utilizes at least one hardware device to operate. For example, a video game, which is
software, uses the computer processor (CPU), memory (RAM), hard drive, and video card to run.
Word processingsoftware usesthe computerprocessor,memory,andhard drive to create and save
documents.
In a computer, hardware is what makes a
Question. 4. Explain the role and responsibilities of Information
Technology Professionals.
Answer:The IT securityworld has witnessed huge demand in the recent years and this transition is
majorlydue tothe global acknowledgmentforthe needforITsecurity.Asthe worldhas adoptedthe
IT worldas a necessarybelonging,the threatssurroundingthe IT worldtooare increasing.Thisledto
IT security strategies that can resolve IT problems and control threats occurring in the technology
field. The IT security professionals are handed with responsibility of protecting the IT world from
rising threats and issues. Let’s have a look at the job of IT
Case 4
(10 Marks)
Question. 1. The primary goal of any national payment system is to
enable the circulation of money in its economy. It isrecognized
world wide that an efficient and secure payment system is an
enabler of economic activity. Morerecently, the proliferation of
electronic payment mechanisms, the increase in the number of
players in thefinancial arena and the payment crises in quite a few

7. countries and regions in the 1990’s have focusedattention on public
policy issues related to the organization and operation of payment
systems.
Answer:
Question. 1. What is payment system?
Answer:A paymentsystemisanysystemusedtosettle financial transactionsthroughthe transfer of
monetary value, and includes the institutions, instruments, people, rules, procedures, standards,
and technologies that make such an exchange possible. A common type of payment system is the
operational network that links bank accounts and provides for monetary exchange using bank
deposits.
What makesa paymentsystemasystemisthe use of cash-substitutes;traditional payment systems
are negotiable instruments such as drafts (e.g., checks) and documentary credits such as letters of
credit. With the advent of computers and
Question. 2. Explain components of a payment system?
Answer:The payment and settlement system consists of the following components:
 Banks providing financial intermediation
 A legal and statutory framework
 Rules, regulations and agreements
 Various payments instruments and payment streams.
 Payment and settlement transactions.
Question. 3. Explain the importance of payment system?
Answer:Paymentsystemsare a vital partof the financial infrastructureof acountry. In Malaysia, the
large value payment system, RENTAS, which is operated by the Malaysian Electronic Clearing
CorporationSdn.Bhd.(MyClear),apaymentsubsidiaryownedbyBankNegaraMalaysia,enablesthe
transferandsettlementof high-value interbankpaymentsandsecurities.Itsfailure could contribute
to systemiccrisisand transmit financial shocks to the financial system. The efficient functioning of
RENTAS allows transactions to be completed safely and in a timely manner contributing to overall
economic performance.

8. Question. 4. Explain the evolution of payment systems in various
stages?
Answer:Payment systems refer to the set of rules, procedures, and mechanisms for transferring
moneybetweentwoormore financial institutionsandtheircustomers.Efficient,secure andreliable
paymentsand settlementssystemsreduce the transactionscostsand are essential for the effective
implementation of monetary policy and smooth functioning of money and capital markets.
The principal components of a payment system
Dear students get fully solved assignments
Send your semester & Specialization name to our mail id :
help.mbaassignments@gmail.com
or
call us at : 08263069601