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International Finance Question Paper

International Finance

Course:Master Of Business Administration

Institution: Kenyatta University question papers

Exam Year:2010

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2008/2009
INSTITUTE OF OPEN LEARNING (IOL)
EXAMINATION FOR THE DEGREE OF MASTER OF BUSINESS
ADMINISTRATION

BAC 601:
INTERNATIONAL FINANCE

DATE: Saturday, 20th February, 2010

TIME: 2.00 p.m. – 5.00 p.m.
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INSTRUCTIONS:
Answer ALL questions.
Question 1
a)
“The economy will have no tendency to head towards the intersection of LM and IS curves if the point describing the combination of the interest rates and aggregate output is not on either of the two curves,” Explain the statement. (10 marks)
b)
Comment on sticky prices and overshooting model (5 marks)

Question 2
a)
Explain what is likely to happen to the aggregate supply curve when the budget deficits rise? (7 marks)
b)
Speculators sometimes put the currencies under severe pressure to be devalued whenever they amount a speculative attack. Citing two approaches your are familiar with, discuss speculative attacks. (8 marks)

Question 3
a)
Kileleshwa Ltd., a Kenyan firm plans to use a money market hedge to hedge its payment of A$ 3000000 for Australian goods in one year. The Kenyan interest rate is 7% while the Australian interest rate is 12%. The sport rate of the Australian dollar is Ksh.0.85, while the one year forward is Ksh.0.81. Determine the amount of Kenya Shillings needed in one year if a year if a money market hedge is used. (8 marks)
b)
Comment on Dornbusch’s model on sticky prices and overshooting (5 marks)

Question 4
a)
Between 2003 and 2008, the price of a room at the Nairobi Intercontinental Hotel rose from Ksh. 350000 to Ksh.480000. At the time the exchange rate went from Ksh.70.00 = $1 in 2003 to Ksh.68.00 = $1 in 2009.s
i)
By how much has the dollar cost of a room at the Nairobi Intercontinental Hotel changed over this five year period? (8 marks)
ii)
What happened to the Kenyan shillings’ dollar value during this period? (7 marks)

International Finance Question Paper

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