Bac 406: International Finance Management Question Paper
Exam Name: Bac 406: International Finance Management
Course: Bachelor Of Commerce
Category: Kenyatta University question papers
UNIVERSITY EXAMINATIONS 2011/2012
INSTITUTE OF OPEN LEARNING – (IOL)
EXAMINATION FOR THE DEGREE OF BACHELOR OF COMMERCE
BAC 406: INTERNATIONAL FINANCE MANAGEMENT
Friday, 16th December 2011
TIME: 11.00 a.m. – 1.00 p.m.
Answer ALL questions
Kenya in 1990’s adopted a floating exchange rate regime. What are the
advantages and disadvantages of such a policy?
Write short notes on the following as used in International Finance
Currency future contracts.
Translation Vs transaction exposure.
The US inflation rate is expected to average 5 percent annually while the Kenya
rate inflation is expected to average about 16 percent annually. If the current spot
rate for the shilling is $0.0145 what is the expected spot rate in 2 years. [4 Marks]
Each time the Kenya shilling strengthens beyond certain limits against other
major hard currencies the Central Bank of Kenya intervenes. Do you agree with
International trade is important to a country always. Comment on factors
affecting international trade.
Page 1 of 3
Garisa Co. Ltd. A Kenyan company imports computers worth $4.0 million and is
to pay after 3 months. On the day of the contract, the rates are
3 months forward KSh78.2052/$
There is an anticipation of a further fall of the Kenya Shilling. What can
Garisa Ltd. Do.
What should Garisa Ltd. do if it knows these is a high probability that in 3
months, the dollar will settle at KSh.76.1410/$.
Define Devaluation of currency. When should a country embark on
devaluation of its currency?
Discuss the various internal Hedging techniques.
Let us assume that the Kenyan shilling, exhibit a six-month interest rate of
14 percent, while the US dollar exhibit a six month interest rate of 5
percent. From a US investor’s perspective, the U.S,. dollar is the home
currency. According to IRP, determine the forward rate premium of the
shilling with respect to U.S. dollar.
Two countries a and B produce only one commodity (Tea). Suppose the price of
tea in the country A is XA 4.5 and the country B YB 8.6
According to the purchasing power parity what should XA:YB spot
exchange rate be?
Suppose the price of tea over the next year is expected to rise to XA 5.4
and YB 10.4 in countries A and B respectively. What should be the
XA:YB spot exchange rate.
Examine separately the effect of the following
A decrease in domestic income.
A rise in the value of hard currencies against the local currency. [3 Marks]
A Revaluation of local currency by the World Bank.
Page 2 of 3
Write short notes on
Open fisher theory.
Purchasing power parity theory.
In January 2009 a Kenyan importer contracted to purchase a machine from a U.K.
manufacturer at sterling pounds 45,000 payable in 3 equal installments in March,
June and September 2009.
During the year the following adjustment took place
February 2009, the Kenyan shilling was devalued by 10%.
In May 2009, the Kenyan currency was adjusted upward by 10% because
of the strong performance of the economy.
In August 2009, the sterling pound was devalued by 21/2%. How much
money in Kenyan shillings did the importer pay the contract.
Note: The rate of exchange as at 31st January 2009 was one sterling
Pound for 109.50 Kenya shillings.
Page 3 of 3
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