International Financial Mangement Question Paper

International Financial Mangement

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2007

UNIVERSITY EXAMINATIONS 2007/2008
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF
BACHELOR COMMERCE

BAC 406: INTERNATIONAL FINANCIAL MANAGEMENT

DATE: Monday 16
th
June 2008 TIME: 2.00pm – 4.00pm

INSTRUCTIONS:
Answer question 1 and any other THREE questions.

Question 1
(a) Define the following types of foreign currency risks
(i) Transaction exposure
(ii) Economic exposure
(iii) Translation exposure. [6 marks]
(b) Explain 6 ways in which a firm can hedge against exposure in a currency
transaction. [6 marks]
(c) What were the main objectives of the Brettonwoods system? [3 marks]
(d) Explain the J-curve effect in management of foreign currency. [3 marks]
(e) Distinguish between Bearer and Registered bonds. [3 marks]
(f) Distinguish between a forward contract and a futures contract. [4 marks]
[Total = 25 marks]
Question 2
What would be the benefits to the East African nations if they achieved a monetary union
like the European Union? Would there be any drawbacks or disadvantages?
[15 marks]

2

Question 3
(a) An investor has £100,000 to invest for one year. The rate of interest in London is
6% and in New York it is 3%. The current spot rate of exchange (ignore spread)
is 1.55 US dollar for £1. How could he engage in arbitrage to earn profit and how
much would it be? State his likely earnings without arbitrage/ignore commission.
[10 marks]
(b) Describe how the money of a Kenyan who wants to buy a car from Mr. Miyashaki
who lives in Osaka Japan gets to Mr. Miyashaki. Call the local Kenyan Mteja and
assume terms of trade most favourable to Miyashaki. [5 marks]

Question 4
(a) Explain and illustrate with an example each direct and indirect methods of foreign
exchange trading quotations. [8 marks]
(b) The Kenyan government is planning to borrow from the international market by
issuing a Bond. Name any two advantages or any two disadvantages for such
undertaking. [2 marks]
(c) List any five criteria that Standard and Poors uses in its work when the client is a
sovereign Nation.
[5 marks]

Question 5
(a) Explain with Kenyan examples the main reasons why MNCs engage in Foreign
Direct investment. [8 marks]
(b) Explain how the political risks faced by national firms in foreign countries can be
minimized. [7 marks]

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