International Finance Question Paper

International Finance

Course:Master Of Business Administration

Institution: Kenyatta University question papers

Exam Year:2009

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

BAC 601: INTERNATIONAL FINANCE

DATE:
Wednesday 7th January 2009
TIME: 2.00pm-5.00pm
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INSTRUCTIONS:
Answer ALL questions
Question 1
a)
In Kenya, interest rate on 1-year loan is 13.4 per cent and inflation is expected to be 7.2 per cent. The expected inflation rate in Kuwait is 9.4 per cent. What should be the interest of 1-year loan in Kuwait [10marks]
b)
Which are some of the factors that could affect a country’s appeal for direct foreign investment? [5marks]

Question 2
a)
Both direct and foreign investments and portfolios investments refer to BOP capital account entries. Explain the operational difference between the two flows. [8marks]
b)
Countries that utilize fixed exchange and those that utilize floating exchange rates are equally susceptible to speculative attacks. Explain. [7marks]

Question 3
a)
The Dornbusch model is based on the premise that prices of goods are “sticky” in the short-run, while prices in financial markets adjust to disturbance quickly. It assumes that the position of the IS-curve is determined by the volume of injections into the flow of income and by the competitiveness of Home Country output measured by the real exchange. Thus IS=C+I+G+Nx(Q) Explain what happens to the net export (Nx) when real exchange rat rise? [15marks]

Question 4
a)
The interest rate in Kenya is 11%; in Egypt, the comparable rate is 4%. The sport rate for the Egyptian Pound is Ksh. 0.0237. If the interest rate parity holds, what is the 90-day forward rate on the Egyptian Pound? [7marks]
b)
Stabilization of the international monetary system involves setting exchange rates and their purchasing power parity rates. What problems might arise from using the PPP rate as a guide to the equilibrium exchange rate? [7marks]

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