International Financial Management: Analysis and Solutions

This document presents a comprehensive solution to an International Financial Management assignment, delving into various aspects of foreign exchange and currency markets. The assignment covers key concepts such as direct and indirect quotations, spot rates, and forward rates, with detailed explanations and calculations. The solution includes an analysis of how different countries utilize spot quotes, as well as practical examples of currency conversions and calculations involving bid and ask rates. Furthermore, it explores the functions of the foreign exchange market, the participants involved, and the different types of transactions conducted, including spot and forward exchanges. The assignment also touches upon the role of central banks in managing currency values and the factors influencing exchange rates. The document offers a clear and concise understanding of the core principles of international financial management, providing valuable insights for students studying finance.

Running head: INTERNATIONAL FINANCIAL MANAGEMENT
International Financial Management
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1INTERNATIONAL FINANCIAL MANAGEMENT
Table of Contents
Answer to Question 1:.....................................................................................................................2
Answer to Question 1a:...............................................................................................................2
Answer to Question 1b:...............................................................................................................2
Answer to Question 1c:...............................................................................................................2
Discussion of why Australia uses type of spot quotes that it does relative to two other
countries:......................................................................................................................................3
Answer to Question 2:.....................................................................................................................3
Answer to Question 3:.....................................................................................................................4
Answer to Question 3a:...............................................................................................................4
Answer to Question 3b:...............................................................................................................5
Answer to Question 4:.....................................................................................................................5
Answer to Question 5:...................................................................................................................10
Answer to Question 6:...................................................................................................................12
References:....................................................................................................................................14

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Answer to Question 1:
Answer to Question 1a:
A direct quotation in the outside trade markets indicates the estimation of the American
dollar is expressed as a for each unit measure of a remote cash. This sort of citation indicates the
amount U.S. cash it takes to buy one unit of outside money (Allen, Hemming & Potter 2013).
Answer to Question 1b:
This part empowers you to oversee trade rates for every money match utilizing
immediate or circuitous citation. The kind of citation utilized is reliant on available standard.
You can characterize the kind of citation per customer and money combines (business
exchange).
Indirect quotation has not been required as of not long ago, on the grounds that
immediate citation was normally utilized for trade rates (Avdjiev, McCauley & Shin 2016). With
the beginning of the double cash period of the European Monetary Union (EMU), backhanded
citation is presently utilized inside Europe for trade rates with the euro. Backhanded citation is
additionally winding up more generally acknowledged globally. Up to this point, there were
numerous restrictions associated with handling aberrant trade rates.
Indirect quotation is the place the cost of one unit of outside cash is given in units of
nearby money, while roundabout citation is the place the cost of one unit of neighbourhood
money is given in units of remote cash (Brigham & Ehrhardt 2013).

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Answer to Question 1c:
The conversion scale of an outside money is communicated as proportionate to a specific
number of units of the household cash. This is typically communicated as the measure of remote
cash expected to trade for 1 unit or 100 units of residential money. The more significant the
residential cash, the more prominent the measure of remote money it can trade for and the lower
the conversion scale. At the point when the local money turns out to be less significant, it can
trade for a littler measure of outside cash and the conversion scale drops (Brooke 2016).
Under indirect quotation, the ascent and fall of trade rates are straightforwardly identified
with the adjustments in estimation of the household money. At the point when the estimation of
the household cash rises, the trade rates additionally rise; and when the estimation of the
residential money falls, the trade rates fall too.
Discussion of why Australia uses type of spot quotes that it does relative to two other
countries:
A indirect quotation in the outside trade showcases that communicates the measure of
remote cash required to purchase or offer one unit of the residential cash (Cangiano, Curristine &
Lazare, 2013). An indirect quotation is otherwise called an "amount citation," since it
communicates the amount of outside cash required to purchase units of the household money. As
such, the local money is the base cash in a backhanded quote, while the remote cash is the
counter cash. A indirect quotation is the inverse or complementary of an immediate quote,
otherwise called a "value citation," since it communicates the cost of one unit of an outside cash
as far as the local money.

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Answer to Question 2:
According to the given problem, the quote in Australia is $0.801, which denotes that 1
AUD is equal to $0.801. Hence, the cost of AUD 250,000 in terms of USD could be computed
with the help of the unitary method as follows:
AUD 1 = $0.801
AUD 250,000 = $(0.801 x 250,000) = $200,250
Therefore, it could be inferred that the cost of AUD 250,000 would be $200,250.
Answer to Question 3:
According to the provided question, the bid rate is provided as $1.2772/GBP and the ask
rate is provided as $1.2787/GBP.
Answer to Question 3a:
In this scenario, $20,000 has been converted into GBP and then it has been converted
back to USD.
1.2772 USD = 1 GBP
1 USD = (1/1.2772) GBP
20,000 USD = (1/1.2772 x 20,000) GBP = 15,659.25 GBP
It is assumed that the ask rate is considered for reverting the amount back to USD. In
order to convert the above amount back to USD, the following calculation has been made:
1 GBP = 1.2787 USD

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15,659.25 GBP = (1.2772 x 15,659.25) USD = 20,023.48 USD
Answer to Question 3b:
In this case, the aim is to earn $1,750 on a round trip transaction by buying at bid rate and
selling at the ask rate. From the above calculation, it has been found that a profit of $23.48 has
been earned by conversion of 15,659.25 GBP.
23.48 USD = 15,659.25 GBP
1 USD = (15,659.25/ 23.48) GBP
1,750 USD = (15,659.25/23.48 X 1,750) GBP = 1,167,107.44 GBP
In this case, the ask rate is considered to find out the amount of USD needed to generate 1,750
USD. Therefore, the amount of USD to be raised is calculated as follows:
1 GBP = 1.2787 USD
1,167,107.44 GBP = (1.2787 x 1,167,107.44) USD = 1,492,380.55 USD
Answer to Question 4:
The inference of residential money in remote trade showcase is a critical instrument
within national bank's toolbox along with maintaining key thought while setting financial
strategy. Through implication, in this way, cash levels impacts several financial factors (Cavusgil
et al. 2014). It can be deemed that financing cost paid within home loan, the profits on
speculation portfolio along with basic needs cost in your nearby general store along with
maitaining employment prospects.

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Cash variances are results of drifting conversion scale framework, which is standard for
real economies. Swapping scale of money is deemed to be affected by various key and
specialized variables. As these variables are largely in a condition of unending motion, money
esteems change starting with one minute then onto the next. In any case, in spite of the fact that a
cash's level is to a great extent expected to be controlled by the hidden economy, the tables are
frequently turned, as gigantic developments in a money can manage the economy's fortunes. The
outside trade showcase is usually known as FOREX, an overall system, which empowers the
trades the world over. The accompanying are the principle elements of outside trade showcase,
which are really the result of its working:
Exchange Function: The essential and most obvious capability of outside trade indicates
is the asset exchanges (remote cash) that initiates from a nation then settlement of instalments
(Deresky, 2017). It essentially incorporates transformation of cash, in which an aspect of Starting
with for exchanging acquiring power that initiates with a nation and ends with other.
For instance, India import merchandise from the USA and instalment in dollars, while
transformation of rupee to dollar can be supported by FOREX (Dudin et al. 2015).
Credit Function: FOREX offers transient credit to shippers for encouraging smooth
merchandise stream and ventures from nation to nation. A shipper might use credit for
supporting remote buys. For instance, an Indian organization requires purchasing apparatus from
USA, might purchase by issuing a trade bill in remote trade platform, with development of three
months.
Forex Market Participants

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Customers and Travellers: Buyers may buy merchandise in a remote nation or through web
with charge card. The customers pay remote money might be changed over to their home cash on
financial record. Voyagers must visit the bank or money trade agency to change with cash (their
"home" money) into another ("goal" cash) at the time of using money to pay products and
enterprises within the country. Voyagers must understand rates to guarantee they attain
reasonable arrangement (Jindrichovska, 2013).
Organizations: Organizations frequently must change over monetary standards when they direct
exchange from outskirts the country. Huge companies must alter over tremendous measures of
money; a multinational organization. This is for instance; General Electric (GE) for example,
changes with several billions of dollars all through the years.
Financial specialists and Speculators: Financial specialists and examiners require money trade
at whatever point they bargain in any outside venture, be it values, securities, bank stores, or
land. Financial specialists and theorists additionally exchange monetary standards trying to profit
by developments in the cash trade markets (Jung 2017). An extremely short record of certain
vital sorts of exchanges led in the outside trade advertises is given underneath.
Transactions within Foreign Exchange Rate
Spot and Forward Exchanges
Spot Market:
The term spot trade alludes to the class of remote trade exchange, which requires the
quick conveyance, or trade of monetary forms on the spot. Practically speaking the settlement
happens inside two days in many markets. The rate of trade successful for the spot exchange is

8INTERNATIONAL FINANCIAL MANAGEMENT
known as the spot rate and the market for such exchanges is known as the spot display (Phan,
Mascitelli & Barut 2014).
Forward Market:
The forward exchanges is an assertion between two gatherings, requiring the conveyance
at some predefined future date of a predetermined measure of outside cash by one of the
gatherings, against instalment in residential money be the other party, at the cost settled upon in
the agreement. The rate of trade pertinent to the forward contract is known as the forward
swapping scale and the market for forward exchanges is known as the forward market (Knights
& Tinker 2016).
The outside trade controls of different nations for the most part manage the forward trade
exchanges with a view to checking hypothesis in the remote trades advertise. For instance,
business banks are allowed to offer forward cover just concerning real fare and import
exchanges. Forward trade offices, clearly, are of gigantic help to exporters and merchants as they
can cover the dangers emerging out of swapping scale changes are going into a suitable forward
trade contract. With reference to its association with spot rate, the forward rate might be at
standard, markdown or premium. In the event that the forward conversion scale cited is correct
proportional to the spot rate at the season of making the agreement the forward swapping scale is
said to be at standard (Madura, 2015). The forward rate for a cash, say the dollar, is said to be at
premium concerning the spot rate when one dollar purchases more units of another money, say
rupee, in the forward than in the spot rate on a for each annum premise.
The forward rate for a cash, say the dollar, is said to be at markdown as for the spot rate
when one dollar purchases less rupees in the forward than in the spot showcase. The markdown

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is likewise generally communicated as a rate deviation from the spot rate on a for every annum
premise (Petty et al. 2015).
The forward swapping scale is resolved for the most part be the interest for and supply of
forward trade. Normally when the interest for forward trade surpasses its supply, the forward rate
will be cited at a premium and then again, when the supply of forward trade surpasses the
interest for it, the rate will be cited at markdown (McKinney 2015). At the point when the supply
is identical to the interest for forward trade, the forward rate will have a tendency to be at
standard.
Futures
While a concentration contract is like a forward contract, there are a few contrasts
between them. While a forward contract is carefully fit for the customer be his universal bank, a
future contract has institutionalized elements the agreement size and development dates are
institutionalized. Prospects taxicab exchanged just on a sorted out trade and they are exchanged
aggressively. Edges are not required in regard of a forward contract but rather edges are expected
of all members in the fates showcase an underlying edge must be stored into a security record to
build up a prospects position (Brooke 2016).
Options
While the forward or prospects contract ensures the buyer of the agreement fro m the
unfavorable swapping scale developments, it takes out the likelihood of picking up a benefit
from positive conversion scale development. A choice is an agreement or money related
instrument that gives holder the privilege, yet not the commitment, to offer or purchase a given
amount of a benefit as a predefined cost at a predetermined future date (Brooke 2016). An

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alternative to purchase the fundamental resource is known as a call choice and a choice to offer
the basic resource is known as a put choice. Purchasing or offering the fundamental resource
through the alternative is known as practicing the choice. The expressed cost paid (or got) is
known as the activity or striking cost. The purchaser of an alternative is known as the long and
the merchant of a choice is known as the essayist of the choice, or the short. The cost for the
alternative is known as premium (Brooke 2016).
Types of options: With reference to their activity qualities, there are two sorts of choices,
American and European. A European alternative taxi is practiced just at the development or
lapse date of the agreement, while an American choice can be practiced whenever amid the
agreement.
Answer to Question 5:
Internationalization is an extremely vital and key choice that an organization takes in its
lifetime. Certain essentials should be met before a firm can consider nationalizing and turning
into a MNC. The first is high nation engaging quality. The nation ought to have the capacity to
offer something that will guarantee an upper hand for the organization or something that can
enable the organization to manage its current upper hand (Avdjiev, McCauley & Shin 2016).
Another essential is the responsibility for capabilities. The organization ought to have a few
skills that will enable it to offset the incognizance of remote markets and natural conditions.
Likewise, the organization ought to have some hierarchical abilities that will expand the ROI by
utilizing the organization's key qualities seriously. These three requirements are basic for
choosing the method of internationalization and the method of nation section that will enable the
organization to contend in world business.

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There are numerous techniques embraced by organizations to internationalize and
overcome remote markets. The most punctual strategy utilized by firms in their procedure of
getting to be MNEs was fares and imports. This may incorporate both stock fares and imports
and administration fares and imports. Administration fares and imports might be tourism and
transportation, benefit execution and resource utilize. A few administrations acquire instalment
for the organizations for the execution of those administrations (Avdjiev, McCauley & Shin
2016). For instance, the organizations may pay expenses for turnkey ventures, which are
exchanged, to the proprietor once they are operational. Administration contracts likewise acquire
the organizations charges for the execution of general and concentrated administration capacities
for another. Resource utilize incorporates Licensing, Franchising, and so forth. Authorizing is the
way toward enabling another organization to utilize its elusive resources like licenses,
trademarks, copyrights, or mastery, under contracts known as permitting understandings for
which they win sovereignties. Diversifying is the procedure of business in which an organization
allows another organization to utilize the trademark as an advantage of the franchisee's business.
The franchisor will help the franchisee by providing crude materials, administration
administrations and so forth and furthermore will set down rules and gauges that are to be trailed
by the franchisee (Cangiano, Curristine & Lazare, 2013).
The companies might face hurdles in becoming in being multinationals:
 One of the best authoritative favourable circumstances is mark acknowledgment, which
at worldwide levels of business is much esteemed.
 The organization can spread risks through multinationals. On the off chance that the
economy is moderate or request is dropping in one nation, odds are it will be flourishing
in another