Q1

Q2

Q3

Q4

Q5

Q6

Globalisation has led to increased international trade worldwide. Letters of Credit (LC) play an important role in facilitating international trade. Required: (a) Describe the role that LC plays in facilitating international trade. (10 marks ) (b) Auckland Ltd. of New Zealand supplies Bumble Bee Sdn. Bhd. (Bumble Bee) of Kuala Lumpur with 20,000 bottles of bee pollen every month. After the collapse of Hanjin Shipping Co. Ltd. of South Korea in August 2016, Bumble Bee is keen to avoid potential losses in the event that its cargo of imported bee pollen could not be unloaded from a vessel of a collapsed shipping liner. Identify the term (involving ownership and responsibility) in a typical letter of credit which will enable Bumble Bee to minimise the risk of such potential losses. Discuss how this term could assist Bumble Bee to mitigate its risk. (10 marks) [Total: 20 marks] Question 3 (a) For August 2016, Japan recorded a higher current account surplus of Yen 2,008 billion. Identify ANY FIVE (5) policies that affect imports and describe how the Japanese government may use these policies to reduce its current account surplus. (10 marks) (b) Assume that the U.S. government imposes restrictions on imports of cold rolled steel from South Korea in a bid to reduce its current account deficit. This product is used in the U.S.'s automobile industry. Examine the likely impact of the above policy on the U.S. balance of trade and its current account deficit. (10 marks) [Total: 20 marks] Many commercial banks have decided to expand their operations beyond their national borders in search of new businesses and profits. This is due to increasing competition in their own domestic markets. Required: (a) Discuss ANY FIVE (5) approaches that a commercial bank may use to expand its operations overseas. Highlight clearly in your answer the advantages and disadvantages of each approach. (10 marks) Union Bank Bhd. has decided to expand its operations to Myanmar. The Board of Directors has given clear instructions that the entity to be set up in Myanmar must be able to operate like a local bank and with minimum bank capital and must not be subjected to the host country's reserve requirements. Identify the most suitable approach that the bank should take to comply with the Directors' instructions. Explain the reason(s) for your selection. (10 marks) [Total: 20 marks] Question 2 "Trade depends on a mix of demand and supply in different countries. It can be bunged up by protectionism, and deflated by depressed economics (exports and imports depend on demand). Between 1985 and 2007 trade volumes shot up at around twice the rate of global GDP." Source: The Economist, 12 October 2016 Required: Identify and discuss the SEVEN (7) events that led to an increase in world trade volume during the 1990s. [Total: 20 marks] Question 3 Exchange rate systems used by governments around the world can be classified into four different types according to the degree of government control. From time to time, central banks, at the request of their national governments, have sought to influence exchange rates of their domestic currencies for various reasons. Required: (a) Examine the FOUR (4) exchange rate systems used by governments around the world. (10 marks) (b) Discuss THREE (3) reasons for national governments to intervene in the movement of exchange rates. Explain how a central bank may use direct intervention to change the value of its domestic currency. (10 marks) [Total: 20 marks] Question 4 In recent years, globalisation has led to increased international trade worldwide. To facilitate international trade, various internationally acceptable methods of payment have been developed to settle these transactions. Required: (a) Discuss briefly FIVE (5) basic methods of payment that are used to settle international transactions, highlighting clearly the different degree of risks of each method to the exporter and importer. (10 marks) Kong Hee Gadgets has been exporting toys from its factory in China to Toni Store in Australia for the past 5 years. Each transaction has been settled through open account as Toni Store has always paid its bills in a timely manner. Kong Hee Gadgets is now considering the use of an internationally accepted method of payment to settle all transactions with Toni Store. Required: Select the most suitable method of payment for Kong Hee Gadgets, based on your answer to part (a) above, that will minimise the risks for both exporter and importer. (10 marks) [Total: 20 marks] In recent years, the volume of international trade worldwide has grown substantially. Various internationally acceptable methods of payment have been developed to settle these trade transactions. Required: (a) Identify and discuss briefly FIVE (5) basic methods of payment that are used to settle international trade transactions, indicating clearly the different degree of risks to the exporter and the importer. (10 marks) (b) KYN Bhd. has been exporting camera electronic components from its factory in Penang to TKL Corp. in Australia for the past 10 years. Each transaction was settled through open account as TKL Corp. has always paid its bills in a timely manner. KYN Bhd. is now considering the use of an internationally accepted method of payment to settle all future transactions. Suggest to KYN Bhd. the most suitable method of payment, based on your answer to part (a) above, that will minimise the risks for both exporter and importer. (10 marks) [Total: 20 marks] Question 3 There are currently four different exchange rate systems being used by governments around the world. These systems are classified according to the degree of government control. Central banks have sought to influence exchange rates of their domestic currencies for various reasons from time to time. Required: (a) Identify and discuss the FOUR (4) exchange rate systems used by governments around the world. (10 marks) (b) Examine the THREE (3) reasons for central banks to intervene in the movement of exchange rates. Explain how a central bank may use direct intervention to change the value of its domestic currency. (10 marks) [Total: 20 marks] The Interest Rate Parity Condition (IRP) explains the relationship between domestic interest rates, foreign interest rates and the expected appreciation of the domestic currency. Investors would be able to make profit known as Covered Interest Arbitrage (CIA) profit if IRP does not exist. Required: (a) You are given the following information. Describe the fund flows that are expected to take place to take advantage of an arbitrage opportunity. SpotrateForwardrate(oneyear)Interestrate(RM)Interestrate(US$)=RM4.32/US$1=RM4.35/US$1=3.3%peryear=0.5%peryear (10 marks) (b) Using the information provided in part (a) above, examine whether CIA profit exists in the above situation. Calculate the arbitrage profit, if any, assuming that you have RM1,000,000 to invest. (10 marks) [Total: 20 marks] Question 5 (a) For the first quarter of 2018 , the United Kingdom (UK) registered a current account deficit of around 17.7 billion. Assume that the UK government has decided to reduce this deficit by addressing the issue of importation of goods and services. Discuss ANY FIVE (5) government policies that are likely to reduce imports and therefore lead to a reduction of the current account deficit. (10 marks) (b) For a country with a balance of trade deficit, its government may decide to adopt a weak home currency solution to reduce the trade deficit. Identify and discuss the FOUR (4) reasons why this approach may not work. (10 marks) [Total: 20 marks] (a) Discuss ANY THREE (3) exchange rate systems used by governments around the world. (10 marks) (b) To smoothen the exchange rate movements, a government can intervene in the foreign exchange market directly or indirectly. Differentiate between direct and indirect foreign exchange intervention. (10 marks) [Total: 20 marks] Question 4 Sugarbelle is one of the homegrown cosmetic brands in Malaysia. It has succeeded in entering the Indonesia and Brunei markets as evidenced by its rising cross border transactions. Discuss FIVE (5) basic methods of payment that can be used by Sugarbelle to settle its international transactions and highlight the risks involved in each of the methods. [Total: 20 marks] Question 2 There are several methods a bank could use to venture overseas. In the case of Public Bank Bhd., it chose to venture into Cambodia by setting up a wholly owned subsidiary, known as Cambodia Public Bank. Required: Critically examine the advantages and disadvantages of the above method for venturing overseas by comparing it with THREE (3) other methods, namely representative office, foreign branch and affiliate bank. [Total: 20 marks] Question 3 There are a number of factors that affect international trade flows. These include government policies and exchange rates. Furthermore, a country's performance in international trade could be evaluated by examining the data from its Balance of Payment's current account. Required: (a) The United Kingdom (UK) registered a current account deficit of around 12.1 billion for the last quarter of 2016 . Assume that the UK government has decided to reduce this deficit by addressing the issue of importation of goods and services. Discuss ANY FIVE (5) government policies that are likely to affect imports. (10 marks) (b) For a country with a balance of trade deficit, its government may decide to adopt a weak home currency solution. Critically examine FOUR (4) reasons why this approach may not work. (10 marks) [Total: 20 marks] Question 4 International arbitrage refers to a process where investors capitalise on a discrepancy in quoted prices by making a riskless profit. Arbitrage activities will eventually cause prices to realign. Required: (a) Covered Interest Arbitrage wiil apply where the interest rate differential does not equal to the forward premium or discount. Illustrate this concept using relevant equations to demonstrate how profit could be made under this scenario. Assume that the investor has Ringgit Malaysia 100,000 to invest. (10 marks) (b) Explain what is meant by the term Locational Arbitrage. Illustrate your answer with an example outlining the steps involved in this arbitrage. Compute the profit from this arbitrage assuming you have USD 10 million to invest. (10 marks) [Total: 20 marks] Question 5 (a) Exchange rate systems can be classified according to the degree of government control. Describe the FOUR (4) exchange rate systems used by governments around the world. (10 marks) (b) Greece, a member state of the eurozone, has experienced severe slowdown in its economy in recent years. Critically examine whether Greece would be able to implement its own unique monetary policy to solve its economic problems. (10 marks) [Total: 20 marks]