Get premium membership and access revision papers, questions with answers as well as video lessons.
International Financial Mangement Question Paper
International Financial Mangement
Course:Commerce
Institution: Kenyatta University question papers
Exam Year:2009
Page 1 of 3
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2009/2010
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR
OF COMMERCE
BAC 406: INTERNATIONAL FINANCIAL MANAGEMENT
DATE: Friday, 9
th
April, 2010 TIME: 11.00 a.m. – 1.00 p.m.
------------------------------------------------------------------------------------------------------------
INSTRUCTIONS:
Answer ALL questions.
Question One
a) Simba is an established trader who deals with international transactions. He is
recently concerned about the stability of exchange rates. He attended a seminar
whose theme was long-term exchange management. The facilitators informed
him that the purpose of long term foreign exchange exposure management by
dealing in the forward market is not to cover foreign exchange exposure, but to
minimize and if possible eliminate such exposures before they become critical
and therefore costly.
Comment on the above statement and suggest what actions the financial managers
should take in both short and long term in order to reduce risks from foreign
exchange transactions. (16 marks)
b) On 1
st
March 2008, a Kenyan importer purchased goods from united states of
America worth $120,000 to be paid for two months later in 30
th
April 2008.
Kenya shilling futures were available in the money market and could be bought in
blocks of Ksh 100,000 and each futures costs Ksh 1,000. spot exchange rate on 1
st
March 2008 was Ksh 76.50 = U.S. $ 1, the two month forward exchange rate on
Page 2 of 3
30
th
was Ksh 79.50 = U.S $1, and the exchange rate at which the futures closed
out was Ksh 77.50 = U.S $ 1
Required:
the net loss or gain of using future contract (5 marks)
c) Discuss and demonstrate the differences between a futures contract and a forward
contract. (8 marks)
d) A tourist from New York is visiting Kenya. He would like to visit as many game
reserves as possible. He has a return air ticket. He has transferred US $ 4,570,
3,150 Sterling pound, 2,354 South African Rand and 2,045 Singapore dollars to
Barclays Bank in Nairobi Kenya. On arrival in Nairobi he authorizes the bank to
convert all his money into Kenyan shillings. He then books himself in Serena
Hotel at a cost of Ksh 10,000 per night for seven nights. The tourist then pays a
tour company Ksh 450,000 to be included ina team what will visit several game
reserves. During the visit to game parks he buys sourvenirs worth Sh 127,445
after his tour which lasts 14 days he wishes to return to New York. At the airport
he pays U.S $ 12 as airport fees.
Required:
i) The total amount of money in Ksh. that the tourist had when he entered
Kenya if the bank charged a 3% commission. (5 marks)
ii) The balance in U.S $ which he has after paying airport fee if the bank
charged him a commission of 3% to convert from Ksh to U.S dollar and 0
dollar to close the account. (6 marks)
Foreign currency conversion rates are shown as below and remain stable for two
weeks.
1 U.S dollar Ksh 79.01
1 sterling pound Ksh 114.46
1 South African Rand Ks 6.97
1 Singapore dollar Ksh 42.60
(Total: 40 marks)
Page 3 of 3
Question Two:
If identical product or service can be sold in two different markets, and no restrictions
exist on the sale or transportation costs of moving the product between markets, the
products price should be the same in both markets. This is called the law of one price.
However this condition does not usually hold hence the need for parity conditions.
Discuss the following:
a) Assumptions for parity conditions. (4 marks)
b) Using a graph illustration explain the relationship between exchange rates and
inflation. (4 marks)
c) Why does the relationship between exchange rates and inflation not consistent in
practice? (4 marks)
(Total: 12 marks)
Question Three
a) You are given the following data:
DM = $ 0.80
FF = $ 0.40
DM = FF 3.0
In a quantitative manner determine whether triangular arbitrage exist. Assume the
American investor hold $500,000. (4 marks)
b) You are given that:
DM = $ 0.80
More Question Papers
Popular Exams
Return to Question Papers