FULLY SOLVED BOOK LASY 5 YEARS PAPERS SOLVED PLUS GUESS

Foreign Exchange Management

UNIT -I
Nature of foreign exchange: sources of demand for and supply of foreign exchange-the balance of payments (bop)
framework; nominal, real and effective exchange rates; determination of rate of exchange, monetary portfolio
balance, purchasing power parity approaches; overvalued and undervalued currencies; exchange rate systems.
UNIT -II
General factors of exchange rate fluctuations; the Dornbusch Sticky -price theory of exchange rate volatility;
exchange rate overshooting and the J-curve effect; central banking intervention for exchange rate stability; effect
of depreciation on trade balance.
UNIT -III
Nature functions and participants of foreign exchange market; spot and forward markets; forward premium;
forwards in hedging and arbitrage; methods of quoting exchange rates; cross rates of exchange; arbitrage
operations; bid -ask spreads; the Interest Rate Parity Theorem; the Expectation Theory; International Fisher Effect.
UNIT -IV
Currency futures, options and determination of their market value, over-the-counter options; Fisher Black’s
Optional-Pricing model; currency and interest rate swaps; credit risk of swaps, Euro currency market and its
instruments; measuring foreign exchange risk and exposure; basic techniques of exposure management; foreign
exchange regulation in India