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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:2013

KENYA METHODIST UNIVERSITY

END OF 1''ST ''TRIMESTER 2013 (DAY) EXAMINATIONS
SCHOOL : BUSINESS AND ECONOMICS
DEPARTMENT : ACCOUNTING FINANCE AND INVESTIMENTS
UNIT CODE : FINA 430
UNIT TITLE : INTERNATIONAL FINANCE

TIME: 2 HOURS

Instructions:

Question One

Explain how theory of comparative advantages relates to need for international business.

(6mks)

Explain how the product cycle theory relates to the growth of an MNC.

(8mks)

Explain how the existence of imperfect markets has led to the establishment of subsidiaries in foreign markets.

(6mks)

Explain methods used in conducting foreign business.

(10mks)

Question Two

Discuss derivates used in integrated financial markets.

(10mks)

Explain the attributes of banks that provide foreign exchange. (10mks)

Question Three

Compute the bid/ask sprees.

(6mks)

Currency bid rate ask rate

British pound $1.52

$ 1.60

Japanese yen

$ .0070 $.0074

Explain why an MNC may invest funds in a financial market outside its own currency.

(8mks)

The ABC Company is a US exporter that invoices its exports to the United Kingdom in British pounds. If it expect that the pound will appreciate against the dollar in the future should it hedge its exports with a forward contract. Explain.

(6mks)

Question Four

Spot rate of British pounds is $1.73. The expected spot rare one year from now is assumed to be $1.66. What percentage depreciation.

(5mks)

If the Euros one year forward rate is quoted at $ 1.0506 and the euro spot rate is quoted at $ 1.03. Calculate the forward premium.

(8mks)

A call option on Canadian dollars with a strike price of $0.60 is purchased by speculators for a premium of $ 0.06 per unit. Assume there are 50,000 units in this option contract. If the Canadian dollars spot rate is $ 0.65 at time option as exercised, what is net profit per unit and per one contract to speculator?

(7mks)

Question Five

How can currency futures are used by corporations.

(6mks)

List the factors that affect currency put options premiums and briefly explain the relationship that exists for each.

(6mks)

Differentiate between currency call option and currency put option. (8mks)

Fina 430:International Finance Question Paper

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