Get premium membership and access revision papers, questions with answers as well as video lessons.
Got a question or eager to learn? Discover limitless learning on WhatsApp now -
Start Now!
International Finance Question Paper
International Finance
Course:Master Of Economics
Institution: Kenyatta University question papers
Exam Year:2009
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2009/2010
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF MASTER OF
ECONOMICS (INTERNATIONAL TRADE AND FINANCE)
EAE 513: INTERNATIONAL FINANCE
DATE: Wednesday 25th November, 2009 TIME: 9.00 a.m. – 12.00 noon
INSTRUCTIONS
Answer ALL questions.
Q1.
Due to the current global financial crisis, the dollar inflow from Kenyans in Diaspora to the country dropped from $280.061 million for Jan – May 2008 to $245.75 million for the same period in 2009 (CBK statement, 23/6/09). Partly due to this, the Kenya shilling has depreciated from Ksh.68.7217 to the US dollar on Friday 29/8/08 to Ksh.75.1925 to the US$ on Friday 16/10/09. A Kenyan businessman had US$ 3 Million at his disposal for speculative purposes, and the following were the foreign exchange rates on the international money markets on 16/10/09:
1 pound Sterling = 1.6245 US dollars
1 Euro =1.4882 US dollars
1 US $ = 90.15 Japanese Yen
Source: Reuters, 29/8/08 and 16/10/09
Suppose the interest rate on a 90-day treasury bill of the Central Bank of Kenya (CBK) for the 16th October 2009 issue was 8 percent per annum. And suppose the 90-day forward exchange rate in Nairobi for January 2010 had been agreed on October 16/10/09 at Ksh.76.012. Finally, suppose the Tokyo (Japan) 90-day forward exchange rate for January 2010 had on 16/10/09 settled at 90.43 Yen. The interest rate on the 16th October 2009 90-day government securities in Tokyo was 3 per cent per annum.
a)
If the Kenyan businessman is a rational investor, which speculative investment option between Nairobi and Tokyo will maximize his return? (The answer should emerge from calculations) [15 marks]
b)
What are the economic implications of the drop in the shilling’s value on:
i.
Government revenue? (Explain clearly) [3 marks]
ii.
Kenya’s exports? (Explain clearly) [3 marks]
iii.
The balance of payments (Explain clearly) [3 marks]
c)
What are the policy implications of the drastic drop in the shilling’s value on:
i.
The foreign exchange regime operating in Kenya? [3 marks]
ii.
The country’s promotion of exports strategy? [3 marks]
Q2.
Given the following simple Keynesian Model:
Y = C + I + X – M
C = 60 + 0.8Y
I = 140
X = 120
M = 10 + 0.2Y
a)
(i)
By how much would income have to change in order to make X = M (with no change in X)? [4 marks]
(ii)
By how much would autonomous investment change in order to generate this change? [4 marks]
b)
Suppose autonomous exports increase by 20. Calculate the impact upon the current account. [6 marks]
c)
How much would autonomous exports have to change in order to produce an equilibrium income level at which the current account was in balance? [6 marks]
Q3.
a)
Draw the LM and IS curves and explain why they slope in opposite directions. [4 marks]
b)
Use the IS-LM model to explain the impact upon income and the interest rate of an increase in the money supply. [8 marks]
c)
If the short-term international capital flow are very responsive to the interest rate, will the BP curve be steeper or flatter than is such capital flows were unresponsive to the interest rate in Kenya? Explain clearly. [8 marks]
Q4.
Given the money supply (Ms) = a(BR + C) ………… (1.0) Where
BR = reserves of commercial banks
C = currency held by non-bank public
A = the money multiplier
Also, given the demand for money (Md) = f(?, P, I, W, E (p') …….. (1.1)
Where:
? = level of income in the economy P price level i = interest rate W = level of real wealth bE(p') = the expected percentage change in price level If the economy is experiencing a monetary equilibrium (i.e. Ms = Md), use the monetary approach to balance of payments (BOP) to show what will happen to the BOP, if the economy is at full employment, and the monetary authorities decide to increase the money supply (by say using the central bank to buy up treasury bonds held by commercial banks)
a)
Under a fixed exchange rate regime [15 marks]
b)
Under a flexible exchange rate regime v[15 marks]
More Question Papers
Popular Exams
Return to Question Papers