International Finance Question Paper
International Finance
Course:Master Of Business Administration
Institution: Kenyatta University question papers
Exam Year:2009
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2009/2010
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF MASTER OF BUSINESS
ADMINISTRATION
BAC 601: INTERNATIONAL FINANCE
DATE: MONDAY, 23RD NOVEMBER 2009
TIME: 2.00 P.M. - 5.00 P.M.
INSTRUCTIONS: Answer ALL Questions.
Question 1:
a)
Every time the Kenyan trade deficit is announced, the foreign exchange traders react to this announcement and even attempt to forecast the figure before they are announced. Why do you think the trade deficit announcements sometimes have such an impact? (7 marks)
b)
A Kenyan firm plans to use a money market hedge to hedge its payments of DM 20000 for German goods in one year. The Kenyan interest rate is 7% while the German rate is 12%. The spot rate of the German DM is KShs.0.85 while the one year forward is 0.81. Determine the amount of Kenya Shillings needed in one year if a money market hedge is used. (8 marks)
Question 2:
a)
The Malawian Kwacha exhibits a six-month interest rate of 6 per cent while the Kenya Shillings exhibit a six month interest rate of 5 per cent. From the Kenyan investor’s point of view, calculate the forward rate premium using the interest rate parity (IRP). Interpret the results. (7 marks)
b)
“The economy will have no tendency to head towards the intersection of LM and IS curves if the point describing the combination of the interest rates and aggregate output is not on either of the two curves”. Explain the statement. (8 marks)
Question 3:
a)
Speculators sometimes put the currencies under severe pressure to be devalued whenever they mount a speculative attack. Citing two approaches you know, discuss the speculative attack. (7 marks)
b)
In the Mundell-Fleming model, under fixed exchange rate, what happens to production, exchange rate and the balance of payments if the world interest rates r* suddenly rises. (8 marks)
Question 4:
a)
When the one year interest rate is 5 per cent on Swedish Kronar and the expected inflation rate is 7 per cent. The expected inflation rate on sterling pound is 6 per cent. The current spot exchange rate is SK1/£1.63:
i)
How much is the spot rate expected in one year? (5 marks)
ii)
What will be the one year forward? (5 marks)
b)
Discuss how devaluation leads to “J-Curve” effect on the balance of payments. (5 marks)
More Question Papers
Exams With Marking Schemes
Popular Exams
Mid Term Exams
End Term 1 Exams
End Term 3 Exams
Opener Exams
Full Set Exams
Return to Question Papers