International Financial Management

Fin4802 Assignment 2015

Assignment 1 Unique number 599325

Question 1

a.

1. b

2. k

3. g

4. a

5. d

6. c

7. h

8. j

9. e

10. i

11. f

b. When investing in securities in another country, two factors must be considered: (1) the change in value of the security and (2) the change in value of the currency in which the security has been purchased. With the strong Rand, that is expected to weaken, South African Investors will show an increased tendency to invest in foreign securities. This is due to the fact that while the Rand will devalue (weaken); the foreign currency will strengthen in relation to the Rand. As such, (assuming that the value of the security does not decrease), if the security is sold the investor would get more Rands and a profit would be made.

c.

i. This question starts with the initial cash infusion that will be done from the parent of Dzata to the new subsidiary. This will be done through Standard Bank and the foreign exchange market will be used as a vehicle for the transfer of the funds. In the initial transaction, Standard Bank will merely facilitate the flow of funds and as such will be a financial intermediary in the market. Funds used be transferred on the spot rate (with delivery within two days) or the future rate and the exchange will be from South African Rand to the domestic currency of the subsidiary. Once established, the subsidiary would then need to conduct business on its own, with credit being obtained from the subsidiary’s home country's Standard Bank Branch. In this instance Standard Bank will now become the creditor and will lend funds in the domestic currency (if needed).

ii. The Namibian subsidiary would need to consider the inflations rates of the specific country as well as the exchange rates of the countries involved. If the subsidiary borrows the money in Namibian Dollars and is also earning Namibian dollars, then the repayments will...