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QUESTION THREE: (Total 25 marks) (a) Explain the agency problem of a multinational corporation and discuss why age might be large for a multinational corporation
QUESTION THREE: (Total 25 marks) (a) Explain the agency problem of a multinational corporation and discuss why age might be large for a multinational corporation than purely a domestic fir cort Homecurreny (8 marks) (b) Kenya Trader Ltd. (KTC), a Kenyan firm has bought goods from a Tanzanian manufacturer and will pay Tsh. 800 million in four months time. The company wishes to hedge against the ma foreign exchange risk and is considering 4 methods. i) ii) iii) iv) Using a lead payment Using the forward exchange contract Using the money market hedge Using currency option. Indirect Annual interest rates and foreign exchange rates are given below: domart 1demes Ksh.1: Tsh. 20.25-20.75 - Per y forunen Spot 4 month forward 15 - 10 cents premium Borrowing Rate 18% - 13% Deposit Rate 15% - Momymertet TO% 4 month Tsh 4 month Ksh. farand P4 am.Curen A four month currency option to buy Tsh. 800 million at an exchange rate of Ksh. 1:Tsh. 20.25-20.75 is currently costing Ksh. 30,000. Required: Advice the company on the best method to use. (17 marks) QUESTION THREE: (Total 25 marks) (a) Explain the agency problem of a multinational corporation and discuss why age might be large for a multinational corporation than purely a domestic fir cort Homecurreny (8 marks) (b) Kenya Trader Ltd. (KTC), a Kenyan firm has bought goods from a Tanzanian manufacturer and will pay Tsh. 800 million in four months time. The company wishes to hedge against the ma foreign exchange risk and is considering 4 methods. i) ii) iii) iv) Using a lead payment Using the forward exchange contract Using the money market hedge Using currency option. Indirect Annual interest rates and foreign exchange rates are given below: domart 1demes Ksh.1: Tsh. 20.25-20.75 - Per y forunen Spot 4 month forward 15 - 10 cents premium Borrowing Rate 18% - 13% Deposit Rate 15% - Momymertet TO% 4 month Tsh 4 month Ksh. farand P4 am.Curen A four month currency option to buy Tsh. 800 million at an exchange rate of Ksh. 1:Tsh. 20.25-20.75 is currently costing Ksh. 30,000. Required: Advice the company on the best method to use. (17 marks)
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