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Financial Markets And Institutions Question Paper

Financial Markets And Institutions

Course:Bachelor Of Commerce

Institution: Kabarak University question papers

Exam Year:2010

COURSE CODE: FNCE 324
COURSE TITLE: FINANCIAL MARKETS AND INSTITUTIONS
STREAM: Y3S2

INSTRUCTIONS:
Answer question ONE (compulsory) and any TWO other questions.

QUESTION ONE:
(a) Many Kenyans are lenders in the financial markets, even without being aware.
Outline four ways in which one can become a lender in the financial markets.
(2marks)
(b)Foreign currency is normally not used in the day to day transactions within a country,
yet it is vital in acquisition of goods that the citizens of a country may need. Explain
four reasons why demand for foreign currency may increase in a country.
(8marks)
(c)According to recent media reports, there has been an increase in the number of
Kenyans who are opting for mortgage as a way of financing purchase of houses. To
take advantage of this, Kenya Commercial Bank recently offered a rights issue partly to
strengthen their mortgage department. Explain the general mortgage lending process in
Kenya.
(8marks)
(d)Mary won ksh.1, 000,000 in a recent promotion by a local mobile phone company.
She is considering investing the money and has received a lot of different pieces of
advice on various types of investments, ranging from sole proprietorship, partnerships
and joint stock companies. Explain to her six reasons for investing in securities of
quoted companies.
(12 marks)
QUESTION TWO
(a)Joyce graduated from Kabarak University in 2009 with a Bachelor of Commerce
Degree. She recently secured employment with one of the leading commercial banks in
Kenya. She is considering purchasing a home on mortgage terms. The house costs Kshs
2,000,000, and a down payment of 10% is required by the mortgage lender. She wants
to obtain a 25 year loan at 10%.Calculate what her monthly mortgage payment would
be. (6marks)
(b)Eldoret Holdings Limited is planning a major expansion programme in six years time
that will cost the company Kshs.10, 000,000.How much should the management
deposit each year at an interest rate of 8%, so that it grows to Kshs.10, 000,000 at the
end of the sixth year?
(4marks)
(c)There are various types of investors who invest in securities. Explain five categories of
investors.
(10marks)
QUESTION THREE
(a)Nakuru Securities Limited is considering the purchase of a six year Kshs.1000 par
value bond, bearing a nominal rate of interest of 6% per annum. Their required rate of
return is 8%.
(i) What should they be willing to pay for bond if it matures at par.
(6marks)
(ii)What would be the present value of the above bond if the required rate of return is
10%? (4marks)
(b)Interest rates are not static but dynamic. Explain five factors that affect interest rates
and the equilibrium of interest rates. (10 marks)
QUESTION FOUR.
(a)Financial institutions are vital for the economy of any country. Explain five economic
functions performed by financial institutions.
(10marks)
(b)The World Bank and international monetary fund have achieved a lot since their
formation in July 1944.However; critics of both institutions have raised various issues.
Explain the five concerns and criticisms about the World Bank and international
monetary fund. (10 marks)
QUESTION FIVE
(c)In Kenya, there are some organizations like Kenya Airways use derivatives to hedge
against some of the risks they face. Explain the benefits enjoyed by such organizations.
(8marks)
(b) A Kenya crude oil importing company is considering the use of either forward
contracts or future contracts in hedging against the fluctuations of prices of crude oil .
Explain to the management of the company the advantages of using future contracts
over forward contracts for this purpose. (12marks)

Financial Markets And Institutions Question Paper

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