Page 105 - DMGT549_INTERNATIONAL_FINANCIAL_MANAGEMENT

International Financial Management

Notes Gross National Product Implicit Deflator: Gross national product implicit deflator is calculated
by dividing the current dollar GNP figure by the constant dollar GNP figure.
Personal Income: Personal income is the income received by individuals, nonprofit institutions,
and private trust funds.
Producer Price Index: Producer price index is compiled from most sectors of the economy, such
as manufacturing, mining, and agriculture. The sample used to calculate the index contains
about 3400 commodities.

6.7 Review Questions

1. What is exchange risk? How can it be managed?

2. Briefly discuss the three kinds of Exposures. Give examples to illustrate each.
3. Distinguish between a forward and a futures contract. Which of the two is more popular?
Why?

4. Discuss the frequently used financial instruments by companies in India and abroad for
hedging exchange rate risk.
5. What do you understand by ‘Currency Correlation’ and ‘Currency Volatility’? Give
examples to illustrate your answer.
6. Why are forward contracts popular?
7. Distinguish between transaction and economic Exposure. Give examples to elucidate your
answer.
8. Discuss the market imperfections for derivatives that characterize the Indian Markets.
9. Discuss the four steps in measuring translation exposure.

Answers: Self Assessment

1. Economic 2. Gross National Product
3. Gross Domestic Product (GDP) 4. Industrial
5. Maximum 6. Factory
7. Three 8. Consumer price index

9. Gross national product 10. 21
11. False 12. True
13. Hedging 14. Option
15. swap

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