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Bac 406: International Financial Management Question Paper
Exam Name: Bac 406: International Financial Management
Course: Bachelor Of Commerce
Category: Kenyatta University question papers
UNIVERSITY EXAMINATIONS 2010/2011
INSTITUTE OF OPEN, DISTANCE AND E-LEARNING
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF
BAC 406: INTERNATIONAL FINANCIAL MANAGEMENT
DATE: Thursday 7th July, 2011
TIME: 11.00 a.m. – 1.00 p.m.
Answer ALL questions.
Discuss the additional factors which deserve consideration in multinational capital budgeting that
are not normally relevant for a purely domestic project?
Compare and contrast the forward contract and future contracts and stage why currencies with
high inflation rates tend to have forward discounts.
Hedging is ordinarily expected to be more costly than not hedging, explain why firms hedge.
Assume a U.S speculator purchased a put option on British pounds for $0.04 per unit. The strike
price was $1.8 and the spot rate at the time the pound was exercised was $1.59. Assume there
are 31,250 units in a British pound option. What was the net profit on the option?
Explain how the cash flows of purely domestic firms are exposed to exchange rate fluctuations.
Explain how the theory of comparative advantage relates to the need for international business
and finance. Why do currencies with high inflation rates tend to have forward discounts?
The cash flows of purely domestic firms are also exposed to exchange rate fluctuations. Discuss
Your company has a payment of 200 million French Francs due one year from now, how will
you hedge the foreign exchange risk in this payment with FF 125000 future contract?
Explain why firms may consider issuing stock in foreign markets.
A country is always worse off when its currency is weak, comment on the statement.
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