Hbc 2221: International Finance Question Paper

Hbc 2221: International Finance

Institution: Jomo Kenyatta University Of Agriculture And Technology question papers

Exam Year:2010

JOMO KENYATTA UNIVERSITY OF AGRICULTULURE AND TECHNOLOGY
UNIVERSITY EXAMINATION 20110/2011
FOURTH YEAR FIRST SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF COMMERCE
HBC 2221: INTERNATIONAL FINANCE
DATE: DECEMBER 2010 TIME 2 HOURS
INSTRUCTIONS: Answer Question ONE and any other TWO questions
Question One
a) Explain the factors that determine foreing exchange rate movement (12 marks)
b) Use the following data from the IMF to answer the questions that follow
KENYA’S CURRENT ACCOUNT
Assumptions (Millions Of US

$) 2000 2001 Goods: exports Goods: Import Services: credit Services: Debit Income: credit Income :Debit Current transfers: Credit Current transfers: Debit 25,800 31,000 8,000 9,500 3,420 8,450 1,360 1,780 28,100 32,500 8,450 9,300 3,500 9,250 1,500 1,510 i. What is Kenya’s balance on goods trade? (3 marks) ii. What is Kenya’s balance on services? ( 3 marks) iii. What is Kenya’s balance on goods and services? ( 2 marks) iv. What is Kenya’s current account balance? (2 marks) c) Capital budgeting for foreign projects is considerably more complex than for domestic project. What three factors add to the complexity? ( 8 marks) Question Two i. What is a sport exchange rate? How is it different from forward rate? (4 marks) ii. Name the four international parity conditions and explain each one briefly (8 marks) iii. In Kenya the interest rate on 1 year loan is 14.5 per cent and inflation is expected to be 6.5 per cent. The expected inflation rate in Burundi is 8.5 per cent. What should be the interest of 1 year loan in Burundi? (4 marks) iv. Suppose that US$ -Kshs spot exchange rate is US

$0.015/Kshs. Instead of buying the US$ immediately, you entered into a forward contract, for the bank deliver US

$to you after 4months. The bank has quoted a 4 month forward rate of US$ 0.014/Kshs. Determine the forward discount or premium assuming a direct quote. (4 marks)
Question Three
i. Bank borrowing has been the long-term method by which corporations and governments borrowed funds for short period of term. What then is the advantage over bank borrowing for each of the following?
a. Syndicate loans
b. Euronotes ( 5 marks)
ii. What are the main types of political risk that are global in origin (5 marks)
iii. Briefly describe the strategies that Multinational Enterprise can use to manage risks
Question four
a) Define the four types of foregn exchange exposure (8 marks)
b) Describe the following
i. Currency swap
ii. Forward market hedge (6 marks)
c) Describe the balance of payment interaction with the following key macroeconomic variables
i. Gross Domestic Product
ii. Interest Rate ( 6 marks)

Hbc 2221: International Finance Question Paper

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