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Bac 305:Finacial Markets And Institutions Question Paper
Bac 305:Finacial Markets And Institutions
Course:Bachelor Of Commerce
Institution: Kenyatta University question papers
Exam Year:2012
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS OF 2012/2013
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF COMMERCE
BAC 305:FINANCIAL INSTITUTIONS AND MARKETS
DATE:THURSDAY,29TH NOVEMBER,2012
INSTRUCTIONS:
Answer ALL Questions.
QUESTION ONE
(a)Citing relevant examples,differentiate between depository and non depository institutions.(5 marks)
(b)Explain the conditions that encourages innovations in the banking sector.(4 marks)
(c)An investor in Keruguya intends to place ksh 32,000,000 in the 182 days Treasury bill at a quoted rate/yield of 9.65 percent per annum.What is his/her return,if he/she is withholding tax-payer or non-withholding tax-payer?Tax rate is 18 percent.(4 marks)
(d)Financial institutions in Kenya have been undergoing a lot of challenges over the years due to environmental changes.Outline and explain the contribution and the challenges in the economy. (8 marks)
(e)What are the effects of an efficient financial market on the economy? (4 marks)
[TOTAL 25 marks]
QUESTION TWO
(a)What is Euro market?Explain the factors to consider when choosing between Euro-markets or domestic markets. (10 marks)
(b)Financial institutions are important in a financial system because trying to solve information asymmetry which includes Adverse selection and Moral Hazard.Differentiate these two terms sighting an example in each. (4 marks)
(c)There were deliberation of a conference Briton-woods that gave birth to the International Monetary Fund's(IMF) and the International Bank for Reconstruction and Development(IBRD).Outline the requirements and the major objectives of the IMF set by charter. (8 marks)
(d)Suppose an investor purchased 95-day commercial paper with a par value of $1,000,000 for a price of $994,854,Compute the discount yield.(3 marks)
[TOTAL 25 marks]
QUESTION THREE
(a)Outline the role of Capital Markets in an Economy. (7 marks)
(b)Differentiate the forward contracts and futures contracts as used in the derivative markets.What are the main advantages and disadvantages of the contracts? (7 marks)
(c)Several theories have been used to explain the shape of the yield curve of interest rates.These are:
-Market segmentation theory
-Liquidity preference theory
-Expectation theory
For each of the following theories explain the meaning. (6 marks)
(d)Explain the theory of interest determination,what are some of the factors that can produce a change to equilibrium position in the financial sector. (6 marks)
[TOTAL 25 marks)
QUESTION FOUR
(a)Explain five characteristics of a bond market.The government is proposing to sell 5 years bond of sh.100,000 at interest rate per annum.If the investor has a minimum require rate of 6 percent.What is the bond's present value? (4 marks)
(b)Equity Bank manager has decided to ensure the bank is listed in the stock exchange market though there are few institutions that are quoted.What are the Benefits of doing this? (5 marks)
(c)Companies in Nairobi have been increasing in Private Placement.What are some of the advantages and disadvantages of private placement? (6 marks)
(d)Explain the importance of a Well functioning Financial System. (4 marks)
(e)Explain the CAMEL system and what are the key challenges of pension funds in Kenya?(6 marks)
[TOTAL 25 marks]
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