Get premium membership and access revision papers, questions with answers as well as video lessons.
Bcom 432: International Finance Question Paper
Bcom 432: International Finance
Course:Bachelor Of Commerce
Institution: Chuka University question papers
Exam Year:2013
UNIVERSITY EXAMINATIONS
FOURTH YEAR EXAMINATION FOR THE AWARD OF
DEGREE OF BACHELOR OF COMMERCE
BCOM 432: INTERNATIONAL FINANCE
STREAMS: BCOM Y4S1 TIME: 2 HOURS
DAY/DATE: WEDNESDAY 7/8/2013 2.30PM – 4.30 PM
INSTRUCTIONS:
1. Answer Question ONE and any other TWO Questions
2. Show all your Workings
3. Do not write on the Question Paper
QUESTION ONE
(a) “Weak home currency is not a perfect solution to correcting a balance of trade deficit”. Discus this statement in light of international finance paying special attention to the Kenya’s balance of payment. [10 Marks]
(b) XYZ Co a firm in Kenya would like to cover itself against a likely depreciation of pound sterling. The following data is given:
Receivables of XYZ Co and Bros: £1,200,000
Spot rate: Kshs.122/£
Payment date: 3 months
3 months interest rate: Kenya: 18 per cent
UK: 5 percent
What should the exporter do? Justify. [10 Marks]
(c) Define the term ‘Foreign Direct Investment’ as used in International Finance.
[2 Marks]
(d) There are arguments for and against the alternative exchange rate regimes.
(i) Discuss two arguments for the flexible exchange rate regimes. [4 Marks]
(ii) State and briefly explain the differences between transaction and translation
exposure. [4 Marks]
QUESTION TWO
(a) Given that shareholders can diversify away an individual firm’s exchange rate by investing in a variety of firms, why the firms concerned about exchange rate risk?
[4 Marks]
(b) Recently, Total Kenya declared a loss of Ksh 6 billion. The media reported that the loss was attributed to the fact that the company transacts internationally through foreign currency. Show how this could have led to the said loss. Using illustrations, suggest the possible solutions. [10 Marks]
(c) ABC Ltd subsidiary of a UK multinational has a translation exposure of Ksh 20,000,000. The rates are as follows:
Spot: sh120/£
One year forward: sh 123/£
A 6 per cent depreciation of the shilling is expected. How can the exchange risk be hedged? [6 Marks]
QUESTION THREE
(a) A call option on US dollars with a strike price of £0.60 is purchased by a speculator for a premium of £0.06 per unit. Assume there are 50,000 units of this option contract. If the US dollar’s spot rate is £0.605 at the time the option is exercised;
(i) What is the net profit or loss per unit to the speculator if the option were to be exercised now?
(ii) What is the net profit or loss for one contract?
(iii) What would the spot rate need to be at the time the option if exercised now? [6 Marks]
(iv) What is the net profit per unit to the seller of this option if exercised now. [6 Marks]
(b) Briefly discuss the factors that affect currency put option premiums. Illustrate.
[6 Marks]
(c) Discuss the implication of balance of payment under fixed and flexible exchange rate regime. [8 Marks]
QUESTION FOUR
(a) Longer – term currency options are becoming more popular for hedging exchange rate risk. Why do you think some firms decide to hedge by using other techniques instead of purchasing long- term currency options. [2 Marks]
(b) Assume that the annual UK interest rate is expected to be 7% for each of the next four years, while the annual interest rate in Kenya is expected to be 20%. Determine the appropriate four year forward rate premium or discount on the Kenyan shilling, which could be used to forecast the percentage change in Ksh over the next four year?
[6 Marks]
(c) Briefly discuss any two important functions of foreign exchange markets. [2 Marks]
(d) In reference to economic theories, discuss how an international financial manager of your firm can device a hedging strategy to control exposure to exchange rates changes.
[10 Marks]
______________________________________________________________________________
More Question Papers
Popular Exams
Return to Question Papers