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Financial Markets And Institutions Question Paper

Financial Markets And Institutions

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2010

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2009/2010
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR
OF COMMERCE

BAC 305:
FINANCIAL MARKETS AND INSTITUTIONS

DATE: Wednesday 25th November, 2009
TIME: 2.00 p.m – 4.00p.m
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INSTRUCTIONS:
• Answer ALL questions.
• All questions carry equal marks

Question One
a)
What is the interest rate parity? (3 marks)
b)
The interest rate in Kenya on a 1 year loan is 15% and inflation is expected to be
5% . The expected inflation in Uganda is 7% . What should be the interest rate of
a 1 year loan in Uganda? (6 marks)
c)
Explain the various ways investor can hedge themselves against foreign exchange
risk.(6 marks)
d)
To what extent ad the IMF fulfilled its objectives in Kenya. (10 marks)

Question Two
a)
Define a market crash and its likely causes.(12 marks)
b)
A company’s share is currently selling for shs 40. It is expected that a dividend of shs 3 per share and a price of shs 42 will be obtained at the end of one year. Should the share be purchased if the required rate is 11 % ? (5marks)

c) Distinguish between:
i)
Bear and bull markets. (2 marks)
ii)
Organized securities exchange and OTC markets. (4 marks)
iii)
Euro bonds and Yankee bonds . (2 marks)

Question Three
a)
Discuss the factors which affect the demand for bonds in the capital market. (6 marks)
b)
Explain the types of risks a bond holder is expected to. (4 marks)
c)
Mr. Kamau wants to invest in a bond. The par value of the bond is shs 1000; the annual coupon rate is 10% with eight years to maturity. If he wants a rate of return of 10%, should hew buy the bond if it is selling at shs 1150. (5 marks)
d)
A 10 year loan is obtained to facilitate the purchase of a residential house. The price of the house is shs 100,000 with a shs 50000 down payment. The interest rate on the loan is 8%. Prepare a schedule for the payments during the first 6 months. (10 marks)

Question Four
a) Explain the following:
i)
Pure expectations. (3 marks)
ii)
Market segmentation theory(3 marks)
iii)
Stock trading orders. (6 marks)

b)
What is financial intermediation(2 marks)
c)
To what extent are financial intermediaries important in the development of an economy?
(10 marks)

Financial Markets And Institutions Question Paper

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