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Fina 430:International Finance Question Paper
Fina 430:International Finance
Course:Business Administration
Institution: Kenya Methodist University question papers
Exam Year:2012
KENYA METHODIST UNIVERSITY
END OF 3''RD ''TRIMESTER 2012 (DAY) EXAMINATIONS
SCHOOL : BUSINESS AND ECONOMICS
DEPARTMENT : ACCOUNTING FINANCE AND INVESTMENTS
UNIT CODE : FINA 430
UNIT TITLE : INTERNATIONAL FINANCE
TIME: 2 HOURS
Instructions:
Answer question One and any other two questions.
Question One
Various firms have several strategic motives to invest abroad. Discuss why firms become multinational while giving relevant and suitable examples.
(6mks)
Managers of MNCs, international portfolio investors, importers and exporters and government officials must deal with determination of exchange rates almost daily. Partly conditions in the Kenya context.
(10mks)
Allan banking Ltd can borrow $ 5 million at 6% p.a. it can use the proceeds to invest in Canadian dollars at 9% p.a over a six day period. The Canadian dollar is worth $ 0.95 and is expected to be worth $ 0.94 in six days. Based on this information, should Allen Banking Ltd borrow U.S dollar and invest in Canadian dollars? What would be the gain or loss in U.S dollar?
(10mks)
Mary MNCs have foreign affiliates that act as tax havens for corporate funds just available for reinvestment and repatriation. Discuss some of the reasons why a country like Mauritius has emerged as a tax haven. (4mks)
Question Two
Blake international Ltd has tow international offices whereby its local business is expected to generate cash flows of £ 1,000,000 at the end of each of the next three years. It also owns a foreign subsidiary based in Mexico and this business is expected to generate £ 2,000,000 in cash flows at the end of each of the next three years. The main competitor of the Mexican subsidiary is columns Ltd. Blake ltd has contacted Columbus ltd wanting to acquire it hence if Blake acquires Columbus ltd then blakes operations in Mexico would be merged with Columbus ltd. The merged operations are expected to generate a total of £ 3,000,000 in cash flows at the end of each of the next 3 years. Columbus Ltd is willing to be acquired at a price of 40 million pesos. The spot rate of the Mexican peso is £ 0.075. the required rate of return on this project is 22%.
Determine the NPV of this acquisition by Blake International Ltd.
(7mks)
Should Blake Ltd pursue this acquisition? Give reasons.
(5mks)
Kenya has been dependent on FDI for capital and employment. While giving suitable examples discuss why Kenya has been attractive to FDI and which are some of the agencies facilitating FDI in Kenya.
(8mks)
Question Three
Capital budgeting for a foreign project is considerably more complex than in the domestic case. What are the main factors that add to the stated complexities?
(6mks)
In obtaining equity financing, a MNC can cross list its shares in one or more stock markets. Discuss the key objectives of cross listing and selling shares on a foreign stock exchange.
(8mks)
A network of bilateral tax treaties provides another means of reducing double taxation. Discuss how Kenya and any European country of your choice have exploited tax treaties to enhance international business. (6mks)
Question Four
Exotic international group ltd uses a centralized cash management whereby the parent can move easily monitor the cash positions of the subsidiaries. Discuss the ways in which this MNC could optimize its cash flows while giving relevant examples.
(10mks)
Elegant Ltd exports highly advanced ICT and phone system components to its subsidiary shops on islands in the Caribbean. The components are purchased by consumers to improve their ICT and phone systems. These components are not produced in other countries. Explain how political risk factors could adversely affect the profitability of the MNC.
(10mks)
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