Analyse four components of the financial account as used in the balance of payments of a country. b) Summarise five assumptions of the theory of comparative advantage as postulated by David Ricardo (1817). c) In an effort to integrate the world trade, a great milestone has been achieved towards globalization of the world economy. World's businesses are turning to foreign sales and cross-border partnerships as paths towards expansion and consolidation. In relation to the above statement, discuss four events and trends that could have contributed to the reduced restrictions and increased international trade. d) Explain three sources of short term borrowing that could be used by a multinational corporation to finance its operations. a) Examine four ethical dilemmas that could be faced by multinational corporations (MNCs) while conducting international business. b) Rhonda Anita has 1 million United States dollars ($) and specializes in cross-rate arbitrage. She observes the following quotes from the foreign exchange dealer. Euro (E)/United States Dollars ($): - 0.7000 0.7010 United States Dollar ($)/British pound (): 1.7000 1.7010 Euro ()/British pound (): 1.2000 0.2010 Required: The arbitrage profit in United States dollar ($) assuming that there are no transaction costs. c) Citing three reasons, justify the cause for central banks' intervention to control the foreign exchange rate in their respective countries. i. Highlight four factors that could affect the spread at the forex market. ii. John Lesuda, an international money market investor is presented with a bid price of 1.0578 United States Dollar (USD) per Euro against an ask price of 1.0587 USD per Euro. Required: The bid-ask spread as a direct quote from the perspective of a European investor. b) Digimax Ventures Limited specializes in the importation of computers from Argentina for sale in selected outlets in Kenya. On 1March 2017, the company imported a consignment worth 2,000,000 Argentine peso (ARS). The company would be expected to settle the amount by 1 June 2017 as it enjoys three months credit. The spot rates on March 2017 and I June 2017 are as shown below: Date 1 March 2017 1 June 2017 Quote: KES/ARS 0.0125 0.0122 On June 2017, the shillings futures are forecasted to trade at 0.01275 KES/ARS (Contract size: KES 2,402,000) as at 1 March 2017. Required: i. Illustrate how Digimax Ventures Limited could have used a futures contract as a hedging tool indicating any hedging gain or loss. ii. The number of futures contracts that Digimax Ventures Limited would have purchased assuming the contract size was KES 4,000,000. c) Dominic Mwamba a treasury manager at Bebra Ltd, a multinational corporation is planning to invest the firms excess cash in a foreign deposit account Required: In relation to the above statement, justify why Dominic Mwamba would prefer to use effective yield compared to interest rate when negotiating a deposit rate with the foreign bank. d) Baraka Multinational Corporation (MNC) has excess cash of Sh.100 million which could be invested in Kenya at the prevailing interest rate of 8% per annum but is attracted to higher interest rates in Uganda. Required: The effective yield assuming that the Ugandan interest rate on deposit is 9.5% per annum and the exchange rate at the time of deposit is 30 Uganda Shillings per Kenya Shilling (UGS/KES) and that one year later the KES depreciates to 28.50 UGS/KES. e) Winnie Leticia, a foreign exchange trader assesses the euro exchange rate for three months as shown below: Spot rate ($) 1.10 1.13 1.15 Probability 0.25 0.50 0.25 The day 90-day forward rate is $ 1.12. Required: Determine whether Winnie Leticia should buy or sell Euros forward against the Dollar assuming that the trader is concerned solely with expected value.