International Finance Question Paper
International Finance
Course:Master Of Business Administration
Institution: Kenyatta University question papers
Exam Year:2010
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2009/2010
OPEN, DISTANCE AND E-LEARNING EXAMINATION FOR THE DEGREE
OF MASTER OF BUSINESS ADMINISTRATION
BAC 601: INTERNATIONAL FINANCE
DATE: Tuesday 20th July, 2010
TIME: 2.00 p.m. – 5.00 p.m.
________________________________________________________________________
INSTRUCTIONS
Answer ALL questions.
Question 1
Capital Flows usually represent direct foreign investments or portfolio investment. The
flows resulting from direct foreign investment change the desire of firms to conduct
business operations there;
a)
Which are some of the factors that could affect a country’s appeal for direct
foreign investment? [5 marks]
b)
The international flows are facilitated by some agencies; illustrate the role of any
four agencies in facilitating the flow of FDI.[5 marks]
c)
Both direct foreign investments and portfolio investments refer to BoP capital account entries. Explain the operational difference between the two flows. [5 marks]
Question 2
a)
Currency A exhibits a six-month interest rate of 6 percent while Currency B exhibit a six month interest rate of 5 percent. From the point of view of investors in currency B country, calculate the forward rate premium using the interest rate parity (IRP). Interpret the results. [8 marks]
b)
In the Dornbusch model, prices of goods are sticky in the short-run while prices in financial markets adjust to disturbances quickly. In the model, the position of the IS curve is determined by the volume of injections into the flow of income and by the competitiveness of home country output measured by the real exchange rate. Thus IS – C + I + G + Nx (Q)
Explain what happens to the net exports Nx when real exchange rate (Q) goes up. [5 marks]
Question 3
a)
The Japanese government has relaxed its control on imports by Japanese companies, other things being equal, how should this affect:
i)
Kenyan demand for Japanese Yen
[5 marks]
ii)
Supply of Yen for sale
[5 marks]
iii)
Equilibrium value of Yen
[5 marks]
Question 4
a)
Countries that utilize a fixed or floating exchange rate are equally susceptible to a
speculative attack. However, if a government chooses to maintain a fixed
exchange rate during a speculative, they risk the chance of severe economic
depression or financial collapse, illustrate. [8 marks]
b)
In Korea, the interest rate is 8% in Japan, the comparable interest rate is 2%. The
spot rate for the Yen is Bhat. 0.00769. If the interest rate parity holds, what is the
90 day forward rate on the Japanese Yen?
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