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Fnmg 540:International Finance Question Paper

Fnmg 540:International Finance

Course:Master Of Business Administration

Institution: Kenya Methodist University question papers

Exam Year:2010

FACULTY : BUSINESS STUDIES AND MANAGEMENT

DEPARTMENT : BUSINESS ADMINISTRATION

TIME : 3 HOURS

INSTRUCTIONS Answer Question ONE (Compulsory) and any other TWO questions.

Question 1

a) In a foreign exchange rate regime, the exchange rate is determined by the market forces of demand and supply. Explain the merits of foreign exchange rate regime (4marks)

b) Explain the various forms of financial crisis faced by IMF member countries. (4marks) c) Explain the distinctive features of foreign exchange market (4marks)

d) As the Finance secretary of a small country in the Indian Ocean. You have been provided with the following summary of information. (Shs. 000) Inflow on account of services 1,000

Outflow on account of services 800

Outflow of dividends, royalty etc 1,000

Inflow of dividends etc 560

Export of goods 10,000

Import of goods 12,000

Remittances 1,200

Determine:

i) The balance of trade (3marks) ii) The balance of current account (5marks)

Question 2

a) Explain four objectives of working capital management in an international firm (4marks) b) Investors like to invest in foreign securities to reap the diversification benefits. Prior to investment they need to analyze the financial statements of those companies in which they think to invest. Explain the problems likely to be encountered during this analysis (7marks) c) Double taxation relief is normally granted by the country in which the parent company has its legal residence. Explain the various modes of double taxation relief. (10marks)

Question 3

a) Explain the international tax management strategies used by international firms to minimize their overall tax burden (6marks)

The following data has been supplied to you from the books of K20 LTD a Kenyan subsidiary with its parent company in the UK.

K20 LTD

Balance Sheet

As at 31st December 2008

Assets (shs. Million) (shs. Millions) Cash 100 Current liabilities 400 Debtors 100 Share capital 1000 Marketable securities 200 Bonds 600 Inventory 300 Retained earnings 400 Land and Buildings 600 Plant and machinery 800 Furniture 300 ____ 2,400 2,400

Historical rate = kshs. 40/UK£, while current rate = kshs. 46/UK£. Determine the translation loss/gain using the following methods.

b) Current rate method (4marks)

c) Temporal method (5marks)

d) Current/non-current method (5marks)

Question 4

Transfer pricing basically refers to pricing of intra-corporate transactions. Transfer prices have assumed importance in view of the fact that they are normally lower or higher than the arms –length prices. a) Discuss the motives behind transfer pricing. Using relevant examples (14marks)

b) Explain the various mechanisms used to regulate transfer pricing among MNC (6marks)

Fnmg 540:International Finance Question Paper

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