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Cfm 204: International Finance Question Paper
Cfm 204: International Finance
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2009
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UNIVERSITY EXAMINATIONS: 2008/2009
SECOND YEAR STAGE 3 EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CFM 204: INTERNATIONAL FINANCE (SUNDAY)
DATE: APRIL 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
a) i) Using the Asian currency crisis as a case in point, discuss how the IMF would intervene if a
country was to experience a financial crisis (3 Marks)
ii) One of the newly elected members of parliament in Kenya is intent on transforming Kenya
into an offshore banking hub as part of the vision 2030 endeavors. Discuss what this concept
entails and the benefits of the same (6 Marks)
iii) Liberalization and globalization has resulted in the rapid grown in international financial
activities. The advent of E-commerce has also enabled companies to greatly expand their
Markets. Identify and elaborate on four factors that complicate financial management in
multinational firms (4 Marks)
b) i) Discuss how the capital Market efficiently allocates resources ( 4 Marks)
ii) Evaluate why a weak home currency is not a perfect solution to correcting the balance of trade
deficit (4 Marks)
c) i) Explain under what circumstances can capital budgeting be done from the home country
perspective (3 Marks)
ii) An ideal currency would posses the three attributes often referred to as the impossible trinity.
Discus these attributes and give reasons why the forces of economic, don’t allow the
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simultaneous achievement of all three (6 Marks)
QUESTION TWO
a) i) Speculative attacks have been blamed in part for having caused the Asian Currency crisis.
Discuss what speculative attacks entails and explain how to reduce vulnerability to the same
(2 Marks)
ii) Discuss two functions of foreign exchange Markets (2 Marks)
iii) Identify the categories of participants in foreign exchange Markets and explain how they
function (5 Marks)
b) In London, a dealer quotes:
GBP/CHF spot : 3.5250/55
GBP/JPY spot : 180.80/181.30
c) What do you expect the CHF /JPY rate to be in Geneva (4 Marks)
d) Suppose that in Geneva you get a quote CHF/JPY spot 51.2835/ 51.4326 , is there an
arbitrage opportunity (7 Marks)
QUESTION THREE
A speculator purchased a call option on AUD at a strike price of $ 2.4 for a premium of $ 1.07. The
spot price at the time was $2.45.The purchase was done on 1st May and expiry date is 18th October.
The value of the underlying is AUD 62500
i. What is the total premium payment ( 1 Mark)
ii. is the option in – the money , at the money or out of the money? (1 Mark)
iii. Does the option have any intrinsic value? ( 1 Mark)
iv. on Expiry suppose the spot rate is AUD /USD 2.4800 will you exercise it ?, what is your
net gain or loss ( 1 Mark)
b) Discuss the determinants of economic exposures (6 Marks)
c) Premier cigarettes are produced in Kenya and USA. It sales for USD 22 in the USA and
Ksh.34 in Kenya
i) According to the theory of PPP, what should be the US dollar / Ksh. spot exchange
rate? ( 3 Marks)
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ii) Suppose the price of cigarettes is expected to rise to $ 27 over the next year, while
its price in Kenya is expected to rise to Ksh.44. What should be the one year
forward US dollar / Ksh. exchange rate be? (3 Marks)
iii) Distinguish between the relative PPP and the absolute PPP ( 4 Marks)
QUESTION FOUR
a) Discuss the factors that led to the internalization of capital Markets in the 1990,s (5 Marks)
b) Discuss the risks that are likely to confront local banks if they choose to go international
(5 Marks)
c) Discuss with an example each, the various types of currency exposures faced by a firm .
(5 Marks)
d) Discuss the theories of international trade (5 Marks)
QUESTION FIVE
a) Futures contracts and forward contracts can be used to modify risk.
Required
Identify the fundamental distinction between Futures contracts and forward contracts
(5 Marks)
b) Discuss the factors that accelerated the growth of international banking in 1980s. (4 Marks)
c). Discuss the determinant of capital structure for international companies (6 Marks)
d). Discuss under what circumstances can the capital budgeting for a multinational be done from
the project’s perspective (5 Marks)
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