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Hba2303:Financial Accounting Question Paper

Hba2303:Financial Accounting

Course:Bachelor Of Commerce

Institution: Meru University Of Science And Technology question papers

Exam Year:2013

QUESTION ONE (30 MARKS)
a) Explain the differences between geographical arbitrage and triangular arbitrage in relation to foreign exchange markets. (5 marks) b) Discuss the differences between international banking services and domestic banking services. (5 marks) c) Assume a 90 day USA securities have 4.5% annualized interest rate, whereas a 90 day Swiss Securities have a 5% annualized interest rate. In the spot market, 1 US Dollar can be exchanged for 1.2 Swiss Franc. If interest rate parity holds, what is the 90 day forward exchange rate between US dollars and Swiss Franc. (4 marks) d) A USA firm has an asset in Britain whose local currency price is random. There are three possible state of nature as shown below:
State of nature
Probability Dollar value of assets
Exchange rate
1 £980 $1.40 2 £1,000 $1.50 3 £1,070 $1.60
Required:
i) Calculate the mean of the asset value and that of exchange rate. (3 marks) ii) Calculate the variance and covanance and the exposure coefficient. (3 marks) e) From 0’rld capital markets began a trend towards global integration. Explain the factors that accounted for this movement. (5 marks)
2
f) Write explanatory notes on the following: i) Spot market (2½ marks) ii) Interest rate party (2½ marks)
QUESTION TWO (20 MARKS)
a) Explain the differences between capital budgeting in foreign and domestic operations. (6 marks) b) Outline the relevant cashflows for an International investment. (6 marks) c) A US Mnc has its subsidiary in Kenya. The subsidiary has issued 12% preference share of the face value of Shs.100 to be redeemed at the end of the year 8. Fluctuation costs are expected to be 4% which can be armotised for tax purposes during the 8 years at a uniform rate. The corporation rate is 35%. Determine the cost of preference shares from the perspective of the subsidiary. (8 marks)
QUESTION THREE (20 MARKS)
a) Explain the determinants of translation exposures. (6 marks) b) Discuss the external techniques of managing foreign exchange risk. (14 marks)
QUESTION FOUR (20 MARKS)
a) Discuss the approached used by foreign firms to enter foreign markets. (8 marks) b) Write short notes on the following theories: i) Comparative advantages. (3 marks) ii) Imperfect market theory (3 marks) iii) Product cycle (3 marks)

Hba2303:Financial Accounting Question Paper

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