Assinment

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FIN542

INTERNATIONAL FINANCIAL MANAGEMENT

QUESTION FROM FINAL EXAM JANUARY 2013 UITM

QUESTION 1

a) There are three (3) main accounts in the balance of payments. Explain the items that are included in each of the account. (6 marks)

Three (3) main accounts in the balance of payments are:

i. Current Account

Current account reflects the net flow of goods, services, income and unilateral transfer. Goods are includes the export and import of tangible product. Services or intangible products are includes the payment and receipt for legal, consultation, royalties and insurance.

ii. Capital Account

Capital account includes all purchases and sales of foreign assets. Divided by two; long term investment which is refer to investment that mature within more than a year (foreign direct investment also portfolio investment) and short term investment which is refer to investments mature within a period of year or less.

iii. Official Reserve Account

Official reserve accounts covers all purchase and sales of international reserve assets of country such as gold, foreign currencies, special drawing rights an reserve positions in the IMF.

b) Discuss any two (2) methods a country can adopt to rectify the deficit in its deficit in its balance of payments. (4 marks)

Two (2) methods a country can adopt to rectify the deficit in its balance of payments are:-

i. Currency Depreciation

Government should sell its currency in greater volume than the existing demand so the currency is much value.

ii. Export and Import

Increase in export and decrease in import. Non-competitive currency will cause of slow export.

c) NBA Bank gave the following quotations for RM/NZ$ rates

RM/NZ$ spot 2.7044/2.8715

One month forward 10/36

Three month forward 49/42

i. Calculate the forward outright...