International Finance Question Paper
International Finance
Course:Master Of Business Administration
Institution: Kenyatta University question papers
Exam Year:2008
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2007/2008
INSTITUTIONAL BASED PROGRAM
EXAMINATION FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION
BAC 601: INTERNATIONAL FINANCE
DATE: FRIDAY, 29TH AUGUST 2008 TIME: 9.00 A.M. – 12.00 NOON
INSTRUCTIONS:
• Answer ALL questions.
• Marks allocated to each Question are appropriately indicated.
• Start each question on a fresh page.
• Show all your workings.
Question 1
(a)
Discuss how devaluation leads to “J-curve” effect on the balance of payments. (7 marks)
(b)
Explain how the deficit in balance of payment of a country can be removed. (8 marks)
Question 2
(a)
Under fixed exchange rates, in the Mundell-Fleming Model, what happens to production, the exchange rate and the balance of payments if the world interest rate r* suddenly rises? (8 marks)
(b)
Suppose the one year interest rate is 5 per cent on Swedish Krona and the expected inflation rate is 2 per cent. The expected inflation rate on Sterling pounds is 6 per cent. The current spot exchange rate is SK 1 = £1.163.
(i)
How much is the spot rate expected in one year?
(2 marks)
(ii)
What will be the one year forward rate?
(2 marks)
(c)
Suppose Euro-French Franc rate is 12 per cent and Euro DM rate is 14.5 per cent, how much is the forward discount on DM? (3 marks)
Question 3
(a)
It is a common practice with the speculators to speculate on the futures market that with forward contracts. Explain the motivation. (7 marks)
(b)
Discuss the contribution of the Dronbusch’s model of exchange rate overshooting to our understanding of floating exchange rate behaviour. (8 marks)
Question 4
(a)
Describe privatization and explain its role in enhancing international capital flows. (7 marks)
(b)
Explain briefly the objectives of the key agencies in international capital flows and their role in facilitating the flows. (8 marks)
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