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Financial Markets And Institutions Question Paper

Financial Markets And Institutions

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2009

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2008/2009
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE

BAC 305: FINANCIAL MARKETS AND INSTITUTIONS

DATE: Thursday
9th April 2009

TIME: 11.00am-1.00pm

-----------------------------------------------------------------------------------------------------------
INSTRUCTIONS:
1.
The examination has FOUR questions
2.
Answer ALL questions
3.
Show all your workings

QUESTION ONE
a) “Stock markets in Africa are still developing, the insufficient” Critically analyze five
factor that can enhance stock market development in African and also improve their
efficiency.
[15marks]
b) Explain the following terms related to stock market.

a)
Backwardation [2marks]

b)
Contango
[2marks]

c) Parri-Passu

[2marks]

d)
Over-the-Counter
[2marks]

e) Ex and Cum

[2marks]

(Total 15marks)

QUESTION TWO
a) Pricing of loans is a key factor to Investment is any country, Hence the need to
focus on Interest Rate determination.
Page 1 of 3
Required:
a) Explain the theories that explain the term structure Interest Rates. [12marks]
b) What is the role of Central Bank of Kenya in Interest rate determination in
Kenya?

[3marks]

(Total
marks
15marks)

QUESTION THREE
a) “Money market is the market of short-term funds” Explain Briefly the nature of
the following markets and instruments.
i)
Call
markets
[2marks]
ii)
Repo Market

[2marks]
iii)
Commercial
papers
[2marks]
b) An investor bought Treasury bill issued 1811 dated December 8th 2008. The
investors time ----is 91-days. Re issue had a face valve of ksh 10,000 and yield of
8.619% per annum.
Required:

a)
Determine the investors total offer payment before tax.
[5marks]
b)
Total
offer
payment
after
tax.
[3marks]
c)
Investors
total
return.
[1mark]

(Total 15 marks)

QUESTION FOUR
Foreign exchange is a key baromer of hoe an economy is performing. However it usually
have risks which firms and Government must cushion themselves against.
Required:
a)
Discuss various types of exposure that firms and governments face because of
Foreign
Exchange
fluctuations. [6marks]
b)
Explain FOUR mechanisms firms can use to cushion themselves against one of
the
key
exposures.
[8marks]
c)
Calculate the premium between the forward rated and spot rates (on an annual
basis) for the following currencies.

Page 2 of 3
Currencies
Sport Rate
90-day forward Rate
British pound
1.4665
1.4510
Canadian dollar
0.7201
0.7156
Japanese Yen
0.006399
0.006416
Swiss franc
0.5895
0.5920
Germany Mark
0.4787
0.4806

NOTE: All the exchange are given in US dollar per unit of the Foreign Currency.
d)
Explain the role of the following Institutions.

IFC

[3marks]

IDA

[3marks]

Page 3 of 3

Financial Markets And Institutions Question Paper

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