A company has been importing and exporting goods both in cash and on credit terms. a) Identify and explain its exposure to foreign exchange rate risk.	[6]

A company has been importing and exporting goods both in cash and on credit terms. a) Identify and explain its exposure to foreign exchange rate risk. [6]

FINANCE OF INTERNATIONAL TRADE

Instructions to candidates:

a) Time allowed: Three hours (plus an extra ten minutes’ reading time at the start – do not write anything during this time)

b) Answer any FIVE questions

c) All questions carry equal marks. Marks for each question are shown in [ ]

1. A company has been importing and exporting goods both in cash and on credit terms.

a) Identify and explain its exposure to foreign exchange rate risk.

[6]

b) Explain how this exposure can be eliminated by the two external hedging techniques – forward

 

 

Contracts and money market contracts.

[14]

2.

 Discuss the process of international trade, highlighting its advantages and disadvantages.

[20]

3.

 Countertrade can take various forms. Explain any FOUR of these forms.

[20]

4.

a)

Briefly discuss the term globalisation.

[6]

 

b)

State SEVEN advantages of globalisation.

[14]

5. Setting up foreign operations range from high risk through to low risk operations. Explain any FOUR

Such methods of foreign operations.

[20]

6. a) Factoring in international trade is on the increase. Explain its function and discuss its main

Advantages.

[12]

b) Discuss the method of international trade finance referred to as forfaiting.

[8]

7. Write concise notes on the following in the context of international trade:

a) Tariffs

b) Quotas

c) Exchange controls

d) Invisible tariffs

[5 each]

8. The euro currency has produced real change to the business environment throughout Europe.

Discuss FIVE benefits arising from its introduction.

[20]




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