Msfi 516:International Finance Question Paper

Msfi 516:International Finance

Course:Master Of Business Administration

Institution: Kenya Methodist University question papers

Exam Year:2011

KENYA METHODIST UNIVERSITY

SCHOOL OF BUSINESS AND MANAGEMENT

END OF SEMESTER EXAMINATION FOR MASTER IN BUSINESS ADMINISTRATION DECEMBER, 2011
UNIT CODE : MSFI 516
UNIT TITLE : INTERNATIOANAL FINANCIAL MANAGEMENT

TIME: 3 HOURS

INSTRUCTIONS:

Answer question One and any other Three questions

Question one

Assume the direct quote between the Kenya shilling and US dollar is 1

$= Ksh. 100 and that inflation rate in Kenya is 6% and that of USA IS 4% Compute the percentage in the direct quote (3mks) Determine the new exchange rates (3mks) Comment on the trend (3mks) Explain briefly four reasons that make knowledge of international financial management important to a financial manager (4mks) You have been retained by the management of a multinational corporation to advice them on the management of its foreign exchange exposure Required Explain to them three types of foreign exchange exposures (6mks) Advice theme on four policies that the multinational corporation can adopt to reduce exposure to foreign exchange risk (8mks) One of the arguments in favour of protectionism policy is to safeguard our local infant industries form collapse. Explain five criticisms of this reason for protectionism (5mks) Assume that Kenya is experiencing a 10% interest rates and UK 6% interest rate and the direct quote between the tow countries 12 1£ = ksh. 150 Calculate the percentage change in the direct quote (3mks) Determine the new exchange rate (3mks) Comment on the trend (2mks) Question Two XYZ international company limited is a Multinational company with a head office in Washington DC and may subsidiaries in Africa, South America and Asia, A subsidiary in Kenya – Africa is considering the possibility of raising funds either in the domestic market or in the foreign market using Eurocurrency and Eurobond market Required What are the main features of the Eurocurrency, Eurobond and euroequity markets (10mks) Explain factors that multinational corporative consider before borrowing funds from either domestic markets or Eurocurrency/Eurobond markets (10mks) Question Three Two economies integrated are stronger than one. The spirit behind the east Africa community is to establish a strong economic bloc for the benefit of the residents/citizens of the countries involved. The benefits of such an integration cannot be over emphasized in terms instilling the spirit of competition thus availing to the residents a wide variety of goods. Required Using European union as a benchmark explain five stages of an economic integration (5mks) Explain the limitations inhibiting East Africa Community form achieving full integration status (level five) (10mks) Suggest possible solutions to limitations identified before (5mks) Question Four Using the Kenya shilling as a point of reference explain five factors that influence a country foreign exchange rates (10mks) An item currently costs £1000 in UK. The current exchange rate is 1$ = £1.60. the rates of inflation are 5% p.a in UK and 10% pa in the US

Required

What will be the price of the item in due years time in the UK and in US

(3mks)

Calculate the percentage change in exchange rates

(2mks)

Determine the new exchange rates

(3mks)

Comment on the trends

(2mks)

Question Five

After the great depression of 1930,s and the destructive 2nd world war, the volume of international trade shrunk; this forced 45 (forty five) countries of the world to assemble at the famous Bretton woods conference of 1944 to discuss international trade. As a result of this conference two financial institutions were established. Explain five objectives of each of these institutions

(10mks)

i)

Define the terms globalization and Liberalization (2mks)

ii) Discuss the pros and cons of globalization and liberalization to a country’s
economy (8mks)

Msfi 516:International Finance Question Paper

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