Financial Markets And Institutions Question Paper

Financial Markets And Institutions

Course:Bachelor Of Human Resource Management

Institution: Kenyatta University question papers

Exam Year:2009

KENYATTA UNIVERSITY
INSTITUTE OF OPEN LEARNING (IOL)
UNIVERSITY EXAMINATIONS 2008/2009
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE AND BACHELOR OF ARTS (HUMAN RESOURCE
MANAGEMENT)

BAC 305: FINANCIAL INSTITUTIONS AND MARKETS

DATE:
Wednesday 7th January 2009
TIME:
2.00pm-4.00pm
------------------------------------------------------------------------------------------------------------
Instructions:
Answer question one and any other two
1.
a)
Various derivative instruments have been created to manage or capitalize on exchange rate movements. Identify the markets that facilitate exchange of such derivatives. (2marks)

b)
Based on your answer above explain how the following participants interact with it:
i)
Commercial banks
ii)
Insurance companies
iii)
Pension funds

c)
Market participants who use foreign exchange derivative tend to take positions based on their expectations of future exchange rates. Discuss the various forecasting techniques. (12marks)
d)
Transfer of funds between suppliers and users through a financial intermediately is beneficial to the investor. Agree to this statement. (10marks)

2.
a)
Distinguish between the following markets.
i)
Primary and secondary markets
ii)
Money and capital markets
(8marks)

b)
What are the instances that make financial markets efficiency (8marks)
c)
What are the degrees of efficiency market hypothesis? (8marks)
d)
A major type of financial intermediary is the depository institutions, which accepts deposits from surplus units and provides credit to deficit units through loans and purchases of securities. Explain their popularity. (6marks)

3.
a)
The uncertainty financial institutions face when investing in mortgages is due to risk. Discuss. (8marks)
b)
Finance companies have diversified their sources of funds in recent years. Support this statement. (8marks)
c)
Enumerate the interaction of commercial banks and savings loan a associations with finance companies. (4marks)

4.
a)
The Central Bank Act of 1966, highlights the role of Central Bank as the Financial controller to Commercial banks. Explain. (8marks)
b)
Exchange rates are not static over time. With relevance to Kenya, what could cause exchange rates to drastically drop from equilibrium? (8marks)
c)
A number of qualified companies are not quoted at the Nairobi Stock Exchange. Give four reasons to justify this statement. (4marks)

5.
a)
Define the following terms
i)
Stock exchange (1mark)
ii)
Commercial bank (1mark)
b)
Bond indenture is a legal document specifying the rights and obligations of both the issuing firm and the bondholders. Briefly describe the provisions in this document. (4marks)
c)
What could be the possible results of financial institutions failure? (12marks)

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