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Hcba 3206: Financial Institutions And Markets. Question Paper
Hcba 3206: Financial Institutions And Markets.
Course:Master Of Business Administration
Institution: Jomo Kenyatta University Of Agriculture And Technology question papers
Exam Year:2012
W1-2-60-1-6
JOMO KENYATTA UNIVERSITY OF AGRICULTURE AND TECHNOLOGY
University Examinations 2012/2013
YEAR II SEMESTER I EXAMINATION FOR THE DEGREE OF MASTERS IN BUSINESS ADMINISTRATION.
HCBA 3206: FINANCIAL INSTITUTIONS AND MARKETS.
DATE: AUGUST 2012 TIME 3 HOURS
INSTRUCTIONS: ANSWER QUESTION ONE AND ANY THREE QUESTIONS
QUESTION ONE (15 MARKS)
NIC Bank a Kenyan firm has invested in Kampala Uganda as per the balance sheet shown below. The figures are stated in Uganda shillings.
ASSETS
Cash 2000
Others 1500
Total 3500
LIABILITIES
Loans 1000
Equity 2500
Total 3500
Required
a) Discuss the major risks that NIC is exposed to. (8marks)
b) Explain with appropriate local examples the moral hazard concept in financial intermediation. (3 marks)
c) If the exchange rate on 30th June was Uganda Shillings 25 for every Kenyan shilling (1 Kshs=Ush 25), using the data provided on the NIC balance sheet show the effects of devaluation of Uganda shilling by 4% on NIC’s balance sheet in Kenya shillings. (4 marks)
QUESTION TWO (15 MARKS)
a. Financial Intermediaries perform three major functions namely maturity transformation, risk transformation and facilitation of flow of funds. Using suitable Kenya examples, discuss the three functions. (6 marks)
b. Other than the above functions, what are the other functions performed by pension fund financial intermediaries.( 6marks)
QUESTION THREE (15 MARKS)
The Kisumu municipal council has established a sinking fund which now runs into millions of shillings. You have been hired as a consultant to assist them invest the funds in stock options which they have heard are very profitable. They are particularly interested in KQ shares which are currently trading at Ksh 24 per share and has a call option trading at Ksh 2.
The council members are interested in the following.
a. Why they should buy an option rather than the KQ share. (2 marks)
b. What determines the value of an option such as the Ksh 2 at which the KQ option is trading. (2 marks)
c. If the KQ share price is either going to be Kshs, 22,23,24,25 or 26. You are required to show using a suitable diagram the profit profile for a call option of this stock.( 9marks)
QUESTION FOUR (15 MARKS)
a. Explain the meaning of financial innovation giving relevant examples of recent innovations in Kenya. (9 marks)
b. Discuss the major strategies a financial institution can employ to deal with the problem of adverse selection using local examples.( 3 marks)
c. Explain any six macro economic factors likely to be influenced by world financial crisis. (3 marks)
QUESTION FIVE (15 MARKS)
Discuss Basel banking principles in respect to the regulation of Kenyan banks. (15 marks)
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