International Financial Mangement-Open Learning Question Paper

International Financial Mangement-Open Learning

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2009

UNIVERSITY EXAMINATIONS 2008/2009
INSTITUTE OF OPEN LEARNING
EXAMINATION FOR THE DEGREE OF BACHELOR OF COMMERCE
BAC 406: INTERNATIONAL FINANCIAL MANAGEMENT
DATE: WEDNESDAY, 12TH AUGUST 2009 TIME: 8.00 A.M. - 10.00 A.M.

INSTRUCTIONS: Answer ALL questions.

Question 1

a) Compare and contrast the forward contract and future contracts and state why
currencies with high inflation rates tend to have forward discounts. (9 marks)

b) 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? (11 marks)

Question 2

a) 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 was 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? (12 marks)

b) Explain how the cash flows of purely domestic firms are exposed to exchange
rate fluctuations? (8 marks)

Question 3
a) Hedging is ordinarily expected to be more costly than not hedging, explain
why firms hedge? (7 marks)

b) Explain how the cash flows of purely domestic firms are exposed to exchange
rate fluctuations? (8 marks)

Page 2 of 2

Question 4
a) A country is always worse off when its currency is weak. Comment on the
statement. (8 marks)
b) Explain why firms may consider issuing stock in foreign markets. (7 marks)

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