Subject: FINANCIAL MANAGEMENT

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  • 5 Marks

FM – Nov 2024 – L2 – Q5c – Public-Private Partnerships (PPP)

Discuss types of PPP arrangements and their suitability for a highway project.

Public-Private Partnerships (PPP) involve collaboration between government and a private sector company that can be used to finance, build and operate projects. Financing a project (for example, a highway) through PPP can allow a project to be completed sooner or make it a possibility in the first place.

Required:
Given the following types of PPP arrangements, discuss each of them and how they can be suitable for a highway project:

i) Build-Operate-Transfer (BOT) 
ii) Design-Build-Finance-Operate (DBFO) 
iii) Service Concession

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  • 5 Marks

FM – Nov 2024 – L2 – Q5b – Overdue Debt Collection

Steps to collect overdue debts in financial management.

Outline the steps to be followed to collect overdue debts.

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  • 10 Marks

FM – Nov 2024 – L2 – Q5a – Management of Receivables

Evaluate the financial implications of different strategies for managing Abaa LTD's accounts receivable.

Abaa LTD, a company that manufactures and sells electronic appliances, has been facing challenges with its accounts receivable management. Currently, the company allows its customers 60 days of credit. Due to the highly competitive market, Abaa LTD has been experiencing an increasing amount of bad debts and delayed payments, which has adversely affected its cash flow and profitability. To address these issues, the company’s Finance Manager is considering several strategic changes:

  1. Reduction in Credit Period: Reducing the credit period from 60 days to 45 days. It is estimated that this change could reduce sales by 5% due to the stricter credit terms, but it would also decrease the bad debt ratio from 4% to 2% of sales.
  2. Offering Early Payment Discounts: Introducing a 2% discount for customers who pay within 30 days. The company anticipates that 30% of its customers will take advantage of this discount, which would improve cash flow and reduce the average collection period by 15 days.
  3. Engagement of a Factor: The company is also considering engaging a factoring company to manage its receivables. The factor would advance 80% of the invoice value upon the sale of goods at 200 basis points below the company’s cost of capital and charge a 3% fee on all sales. The factor is expected to reduce the bad debt ratio to 1% of sales and further reduce the average collection period by 20 days. Engaging the factor will lead to annual administrative savings of GH¢90,000.

Abaa LTD’s current annual sales are GH¢20 million, and the variable cost of sales is 60% of sales. The company’s cost of capital is 12% per annum.

Required:
Evaluate the financial implications of the following:
i) Reduction in Credit Period
ii) Offering Early Payment Discounts
iii) Engagement of a Factor
iv) Recommend the appropriate method to manage the credit sales

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  • 5 Marks

FM – Nov 2024 – L2 – Q4b – Procurement and Tendering Procedures

Discuss circumstances under which single-source procurement is appropriate and functions of the Entity Tender Committee.

The Farms and Gardens Authority (FGA), a public entity, wants to buy 100 computers and 20 printers for its administrative offices. The Chief Executive Officer (CEO) is considering using the single-source procurement method to procure the computers and printers while pushing back on the recommendations of the Entity Tender Committee.

Required:

i) State TWO circumstances under which single-source procurement would be appropriate for the goods the FGA wants to procure.

ii) Advise the CEO on TWO functions the Entity Tender Committee is expected to perform in the FGA’s procurements.

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  • 11 Marks

FM – Nov 2024 – L2 – Q4a – Business Valuation

Valuing a company using the discounted cash flow model and price multiples.

Djokoto PLC (Djokoto) has 12 million ordinary shares outstanding and no other long-term debt. The Finance Director of Djokoto, Adepa, estimates that Djokoto’s free cash flows at the end of the next three years will be GH¢0.5 million, GH¢0.6 million, and GH¢0.7 million, respectively. After Year 3, the free cash flow will grow at 5% yearly forever. The appropriate discount rate for this free cash flow stream is determined to be 15% annually.

In a separate analysis based on ratios, Adepa estimates that Djokoto will be worth 10 times its Year 3 free cash flow at the end of the third year. Adepa gathered data on two companies comparable to Djokoto: Mesewa and Dunsin. It is believed that these companies’ price-to-earnings, price-to-sales, and price-to-book-value per share should be used to value Djokoto.

The relevant data for the three companies are given in the table below:

Variables Mesewa Dunsin Djokoto
Current Price Per Share 7.20 4.50 2.40
Earnings Per Share 0.20 0.15 0.10
Revenue Per Share 3.20 2.25 1.60
Book Value Per Share 1.80 1.00 0.80

Required:
i) Estimate Djokoto’s fair value based on the discounted cash flows model. (5 marks)
ii) Compute the following ratios for the comparable companies:

  • P/E Ratio (2 marks)
  • Price-to-Sales Ratio (2 marks)
  • Price-to-Book-Value Ratio (2 marks)
    iii) Based on the valuation results, discuss whether an investor should buy, sell, or hold Djokoto shares. Justify your recommendation. (4 marks)
    iii) Identify two advantages and two disadvantages of business combinations.

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  • 5 Marks

FM – Nov 2024 – L2 – Q3b – Mobile Money vs Traditional Banking

Discuss the disadvantages of mobile money compared to traditional banking services.

The development of mobile money in Ghana has provided a section of the population with banking services that were previously not accessed. This expansion in financial inclusion is seen as a positive step towards boosting economic activity and alleviating poverty. However, there are some disadvantages to mobile money compared to a traditional bank account.

Required:
Explain FOUR disadvantages of mobile money compared to a traditional bank account.

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  • 12 Marks

FM -NOV 2024 – L2 – Q3a – Foreign Exchange Risk Management

Explaining foreign exchange risk types and calculating the impact of forward contract hedging.

a) Dadisen PLC manufactures and sells pharmaceutical products in Ghana. It imports a significant portion of its pharmaceutical inputs from the USA. However, it only sells its products in Ghana. The company is considering establishing its foothold in The Gambia, Liberia, and Sierra Leone markets.

i) Dadisen PLC reports its results in its home currency. It pays for its purchases from the USA in US dollars but receives payments for its sales in Ghana cedis. All sales from Gambia, Liberia, and Sierra Leone are expected to be transferred into US dollar accounts each week. On average, the company generally takes 90 days to pay its suppliers and receives payment from its debtors within 60 days. In paying its suppliers, the company relies on bank overdrafts at an annual rate of 10%.

Over the last few years, the company has found that sales have been quite predictable, and it has been possible to plan sales levels and purchases of goods in advance. However, the company does not have adequate management skills for its foreign currency exposure. As a result, the company has reported exchange rate losses since 2020. The company is currently considering whether the forex exposure could be better managed.

Required:

Describe the following types of foreign currency exposure, giving examples of how they could impact the financial statements of Dadisen PLC:

  • Transaction risk
  • Translation risk
  • Economic risk

ii) The company estimates that it will need to borrow $1 million in three months’ time for a period of six months but is concerned about expected fluctuations in the exchange rate. The company is considering hedging this exposure using a currency forward contract. The company’s banker, GCB, has agreed to sell the US dollar forward for 9 months at GH¢17 to the dollar.

Required:
Compute the effect of the currency forward transaction on profitability if the spot exchange rate in 9 months is:

  • GH¢22
  • GH¢15

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  • 20 Marks

FM – Nov 2024 – L2 – Q2 – Investment Appraisal

Calculate the NPV of launching two new products, Agbui and Loloi, and advise on the investment decision.

Santrofi PLC is a publisher that wants to expand its market share in magazine publications. The company plans to launch two new products, Agbui and Loloi, at the start of January 2025, which it believes will each have a 4-year life span. The sales mix is assumed to be fixed. The information below is relevant:

  1. Expected sales volumes (units) for Agbui:
Year 1 2 3 4
Volume 30,000 55,000 50,000 15,000

  1. The first year’s selling price and direct material costs for each Agbui unit will be GH¢31 and GH¢12, respectively. On the other hand, the company expects to sell 25% more Loloi units than Agbui. Both selling price and direct material cost of Loloi are expected to be 25% less than Agbui’s.

  2. Incremental fixed production costs are expected to be GH¢500,000 in the first year of operation, apportioned based on revenue. Advertising costs will be GH¢250,000 in the first year of operation and then GH¢125,000 per year for the following two years.

  3. To produce the two products, an investment of GH¢1 million in machinery and GH¢500,000 in working capital will be needed, payable at the start of the period. Santrofi PLC expects to recover GH¢600,000 from the sale of machinery at the end of the project life. Investment in machinery attracts a 100% first-year tax-allowable depreciation. The company has sufficient profit to take full advantage of the allowance in Year 1. For the purpose of reporting accounting profit, the company depreciates machinery on a four-year straight-line basis.

  4. Revenue and costs are expected to be affected by inflation after the first year as follows:

    • Selling price: 3% a year
    • Direct material cost: 3% a year
    • Fixed production cost: 5% a year

  5. The company’s real discount rate is 10% for investment appraisal. Average inflation is deemed to be 3%. The applicable corporate tax rate is 25%.

Required:
Calculate the Net Present Value (NPV) of the proposed investment in the two products and advise the company on its investment appraisal.

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  • 15 Marks

FM – May 2016 – L3 – Q7 – Financing Decisions and Capital Markets

Comparing the cost of financing equipment replacement through an outright purchase funded by a loan versus a finance lease.

MK Plc is considering the best way to finance the replacement for a particular high specification piece of equipment that has become too costly to maintain. The replacement equipment is estimated to have a useful life of 4 years with no residual value after that time.

Two alternative financing schemes are being evaluated:

  • Scheme A: Buy the equipment outright funded by a bank loan
  • Scheme B: Enter into a four-year finance lease

Scheme A: Buy outright, funded by a bank loan
MK Plc could purchase the equipment outright at a cost of N200 million on July 1, 2016. MK Plc can normally borrow at an annual interest rate of 13% per year.

Scheme B: Four-year finance lease
The equipment would be delivered on July 1, 2016, and MK Plc would pay a fixed amount of N58,790,000 each year in advance, starting on July 1, 2016, for four years. At the end of four years, ownership of the equipment will pass to MK Plc without further payment.

Other Information:

  • MK Plc has a cost of equity of 20% and WACC of 16%
  • MK Plc is liable to company tax at a marginal rate of 30%, which is settled at the end of the year in which it arises
  • Tax depreciation allowances on the full capital cost are available in equal instalments over the first four years of operation

You are required to:

a.

Calculate which payment method is expected to be cheaper for MK Plc and recommend which should be chosen solely on the present value of the two alternatives as at July 1, 2016. (13 Marks)

b.

Discuss the appropriateness of the discount rate used in (a). (2 Marks)

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  • 8 Marks

FM – May 2016 – L3 – Q6b – Investment Appraisal Techniques

Calculating the betas, required rates of return, and stock prices for three securities based on market data and forecasts.

The expected return on the market portfolio (estimated from past data) is 12% p.a. with a standard deviation of 15% and the risk-free rate of 4% p.a. The actual prices, last year dividends, and the covariances from three securities (A, B, C) with the market are given in the table below:

Security Actual Price (N) Last Year Dividend (N) Covariance with Market
A 107 1.30 0.025650
B 618 18.00 0.018675
C 1,350 22.00 0.029025

You are required to:

i.

Calculate the betas and the required rates of return of securities A, B, and C. (3 Marks)

ii.

In the table below, you have the market consensus forecast of 12-month price targets, ex-dividends, and the expected dividend growth rate of the securities.

Security 12-month price target (N) Dividend growth rate (%)
A 122.50 12
B 740.00 10
C 1,500.00 11

Assuming the dividends are paid in 12 months exactly, compute the required stock price for the 3 stocks and state your conclusion. (4 Marks)

iii.

Considering the results in (ii) above, explain briefly what will be your strategy? (1 Mark)

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  • 15 Marks

FM – Nov 2022 – L3 – Q6 – Dividend Policy

Analyze P/E ratios and calculate dividend cover for companies in the food retail sector.

Companies A, B, and C are in the food retailing sector of the stock market. The following key stock market statistics are provided.

Food Retailers: Ordinary Shares, Key Stock Market Statistics:

Company A B C
Share Price (₦) 2.10 1.80 2.30
Earnings per Share (₦) 0.30 0.25 0.35
Dividend per Share (₦) 0.18 0.15 0.25

Required:

a. Illustrating your answer by using data from the table above, define and explain the term P/E ratio, and comment on the way it may be used by an investor to appraise a possible share purchase. (8 Marks)

b. Using data in the above table, calculate the dividend cover for Companies C and B, and explain the meaning and significance of the measure from the point of view of equity investors. (7 Marks)

(Total 15 Marks)

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  • 15 Marks

FM – Nov 2022 – L3 – Q5 – Business Valuation Techniques

Calculate the equity value of APL using SVA and outline three methods for funding the MBO.

Aderupoko Plc (ADP), a large listed media group, has been the holding company of Adamu Publishers Limited (APL) since 2015. The publishing company (APL) is 100% owned by ADP since inception.

Recently, the directors of APL informed ADP’s board of their readiness to make a management buy-out (MBO) of APL. Accordingly, ADP’s board decided to value APL using the shareholder value analysis method (SVA). ADP’s board estimates that APL has a four-year competitive advantage over its competitors (to 30 September 2024) and the following data regarding APL’s value drivers and additional financial information has been collected:

Year to 30 September 2021 2022 2023 2024 2025+
Sales growth (%) 5% 4% 3% 2% 0%
Operating profit margin 8% 9% 10% 10% 10%
Incremental non-current asset investment (% of sales increase) 5% 6% 3% 2% 0%
Incremental working capital investment (% of sales increase) 6% 5% 4% 4% 0%

Financial Information:

  • Sales for the current year to 30 September 2020: ₦80 million
  • Annual depreciation (equal to annual replacement of non-current asset expenditure): ₦2.0 million
  • Par value of 6% debentures in issue (current market value ₦95.00, nominal value ₦100): ₦10.0 million
  • Short-term investments held: ₦0.8 million
  • Company tax rate: 20%
  • Current WACC: 10%

Required:

a. Calculate the value of APL’s equity using SVA.

(12 Marks)

b. Outline three methods by which APL’s directors might raise the funds necessary for the proposed MBO of the company. (3 Marks)

(Total 15 Marks)

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  • 20 Marks

FM – Nov 2022 – L3 – Q4 – Investment Appraisal Techniques

Evaluate the decision to invest in an innovative beverage using real options and the Black-Scholes model.

Tayo Kayode (TK) is a highly successful beverage company listed on the Nigerian stock market. Its products are particularly attractive to the younger generation.

Eko Laboratory (EL) has developed an innovative synthetic, alcoholic beverage – the Younky.

It is believed that the product, if manufactured commercially, will be popular among the youths.

TK has been offered a license to produce the Younky on the condition that it commences production within the next twelve months. In the last board meeting, the Marketing Director, Kehinde Kay, presented the following preliminary evaluation of the project.

Kehinde recommended that the project should thus be rejected.

However, the Finance Director (FD), Ben Okon, argued that conventional NPV analysis undervalues projects with high uncertainty as the value of embedded real options is often ignored. He suggested that the possibility of delaying the project for up to twelve months effectively gives TK a call option on development and that if market forecasts improve over the next year, then the company can benefit. To get the ‘right answer,’ he concluded, option values must be incorporated.

The current long-term government bond yield is 5%. The expected standard deviation of future cash flows is estimated to be 35%.

Required:

a. Comment on the views of the Marketing and Finance Directors. (5 Marks)
b. Using the Black-Scholes option pricing model for a European call option, estimate the value of the option to commercially develop and market the Younky. Provide a recommendation as to whether or not TK should manufacture the Younky. (10 Marks)
c. Comment on modeling the possibility of delay as a European call option. (5 Marks)

(Total 20 Marks)

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  • 20 Marks

FM – Nov 2022 – L3 – Q3 – Financing Decisions and Capital Markets

Evaluate the financing structure and calculate required return, WACC, and factors influencing beta.

Zakai (ZK) Plc is a listed company that owns and operates a large number of farms throughout the country. A variety of crops are grown.

Financing Structure:
The following is an extract from the statement of financial position of ZK Plc as at 30 September 2021:

The ordinary shares were quoted at ₦3 per share ex div on 30 September 2021. The beta of ZK Plc’s equity shares is 0.8; the annual yield on treasury bills is 5%, and financial markets expect an average annual return of 15% on the market index.

The market price per preference share was ₦0.90 ex div on 30 September 2021. Loan stock interest is paid annually in arrears and is allowable for tax at 30%. The loan stock was priced at ₦100.57 ex interest per ₦100 nominal on 30 September 2021. Loan stock is redeemable on 30 September 2022.

Assume that taxation is payable at the end of the year in which taxable profits arise.

A New Project:
Difficult trading conditions have caused ZK Plc to decide to convert a number of its farms into camping sites with effect from the 2022 holiday season. Providing the necessary facilities for campers will require major investment, and this will be financed by a new issue of loan stock. The returns on the new campsite business are likely to have a very low correlation with those of the existing farming business.

Required:

a. Using the capital asset pricing model, calculate the required rate of return on equity of ZK Plc as at 30 September 2021. Ignore any impact from the new campsite project. (3 Marks)

b. Briefly explain the implications of a beta of less than 1, such as that for ZK Plc. (2 Marks)

c. Calculate the weighted average cost of capital (WACC) of ZK Plc as at 30 September 2021 (use your calculation in answer to requirement (a) above for the cost of equity). Ignore any impact from the new campsite project. (10 Marks)

d. Without further calculations, identify and explain the factors that may change ZK Plc’s equity beta during the year ending 30 September 2022. (5 Marks)

(Total 20 Marks)

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  • 20 Marks

FM – Nov 2022 – L3 – Q2 – Financing Decisions and Capital Markets

Evaluating financing options (rights issue vs convertible loans) for Balama Plc's expansion.

Balama Plc. (Balama) is a listed manufacturer of dairy products. In recent years, the company has experienced only a modest level of growth, but following the recent retirement of the chief executive, his replacement is keen to expand Balama’s operations.

The board of directors has recently agreed to support a proposal by the new chief executive that the company purchase new manufacturing equipment to enable it to expand its range of dairy products. The new equipment will cost N50 million, and the company is seeking to raise new finance to fund the expenditure in full. However, the board of directors is undecided as to how the new finance is to be raised. The directors are considering either a 1 for 5 rights issue at a price of N2.50 per share with a theoretical ex-rights price of N2.92 or a convertible loan of N50 million.

The loan will be secured against the company’s freehold land and buildings. The company’s share is presently quoted at a price of N3.00 per share.

Required:

a. Explain the terms ‘rights issue’ and ‘convertible loans’. (3 Marks)

b. Explain how the ‘theoretical ex-rights’ price of N2.92 is calculated and why the actual price might be different. Show your workings. (4 Marks)

c. Prepare a report for the board of directors that fully evaluates the two potential methods of financing the company’s expansion plans. (13 Marks)

(Total 20 Marks)

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  • 30 Marks

FM – Nov 2022 – L3 – Q1 – Mergers and Acquisitions

Evaluating the acquisition of Company K3 in Togo for business expansion purposes.

The following case relates to a business expansion decision for Abayomi Plc (AP):

Abayomi Plc (AP) is a major electrical company in Nigeria. The directors have recently identified Togo as a priority location for business expansion. Togo uses currency T$. Assume today is 30 August 2021.

Company K3, located in Togo, has been identified as a potential acquisition target. AP already manages two business units in Togo, named K1 and K2, and these have shown strong performance under AP’s ownership.

K3 is particularly attractive to AP because it has its own warehouse, distribution, and logistics network, all of which could be used by K1 and K2, if the acquisition goes ahead. Currently, K1 and K2 send goods to customers from AP warehouses located in Ghana. This involves considerable cost and delay in delivery.

K3 is a private company, and 100% of its shares are owned by the family that founded it. Many shareholders are keen to realize their investment by selling the company to AP.

Both companies are working towards an effective date for the sale of K3 to AP on 1 January 2022.

Financial Data for K3 for 2020:

The statement of financial position of K3 as at 31 December 2020 showed the following balances:

T$ Million
Long term borrowings 375
Share capital (T$1 ordinary shares) 90
Total liabilities 465
Net assets 180

Additional Data:

AP aims to maintain the same capital structure as AP. That is, gearing (debt/debt+equity) would be 25% based on market values. AP would guarantee K3’s new debt, which can be assumed to have the same risk profile as AP’s debt.

A proxy company has been identified which is also located in Togo and has a similar business model to K3.

Proxy company data:

  • P/E ratio of 12.
  • Equity beta of 1.7 and debt beta of 0.4.
  • Gearing (debt/debt+equity) based on market values of 35%.

Togo has a risk-free rate of 5% and a market risk premium of 4%.

Financial Data for AP:

Latest data available for AP shows:

  • P/E ratio of 14.
  • Equity beta of 1.5 and debt beta of 0.3.
  • Gearing (debt/debt+equity) based on market values of 25%.
  • AP pays 6.2% interest on its long-term borrowings.
  • Tax rate in Nigeria is 30%.

The spot rate for T$ against Naira today is T$7/₦ (i.e., ₦1 = T$7.00) and is not expected to change in the foreseeable future.

Assume that Nigeria has the same risk-free rate and market risk premium as Togo.

Required:
Assume you are the Finance Director of AP.

a. Advise on:
i. The types of synergistic benefit that might arise from the acquisition of K3. (8 Marks)
ii. Possible reasons why both one-off and ongoing synergistic benefits might not be achieved to the extent expected. (4 Marks)

b. Calculate:
i. A Weighted Average Cost of Capital (WACC) for use in valuing K3 based on the proxy company’s business and country risk and AP’s capital structure. (6 Marks)
ii. A range of values for the equity of K3 in T$ as at 1 January 2022 using the following methods:

  • Asset basis. (2 Marks)
  • P/E (including bootstrapping). (5 Marks)
  • DCF (with and without synergistic benefits). (5 Marks)

(Total 30 Marks)

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  • 15 Marks

FM – Nov 2017 – L3 – Q7 – Portfolio Management

Evaluate investment risk in different portfolio scenarios and explain the implications of beta and alpha values for KT Plc’s equity.

a. In the context of the selection and holding of investments, discuss each of the following scenarios:

i. An investor holding only one security needs to be concerned with the unsystematic risk of that security. (3 Marks)

ii. However, an investor who holds a number of securities should take account of total risk. (3 Marks)

iii. An investor should never add to a portfolio an investment that yields a return less than the market rate of return. (3 Marks)

b. The equity beta of KT Plc. is 1.2 and the equity alpha is 1.4. Explain the meaning and significance of these values to the company. (6 Marks)

(Total 15 Marks)

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  • 15 Marks

FM – Nov 2017 – L3 – Q6 – Ethical Issues in Financial Management

Explore ethical considerations in capital investment and apply the Black-Scholes model in company valuation.

You have recently taken up employment with Large Plc., a Nigerian company with manufacturing subsidiaries in many countries across Africa. As the Financial Analyst, you report directly to the Managing Director who currently requires briefings on the following areas:

(i) Ethical issues and capital investment decisions,
(ii) Options and company valuation

Required:

a. Explain, with examples, ethical issues that might affect capital investment decisions and discuss the importance of such issues for Strategic Financial Management. (8 Marks)

b. Explain the circumstances in which the Black-Scholes Option Pricing (BSOP) model could be used to assess the value of a company, including the data required for the variables used in the model. (7 Marks)

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  • 15 Marks

FM – Nov 2017 – L3 – Q5 – Corporate Governance and Financial Strategy

Identify stakeholder financial objectives and discuss methods to incentivize directors to maximize shareholder wealth.

Private sector companies have multiple stakeholders who are likely to have divergent interests.

Required:

(a) Identify FIVE stakeholder groups and discuss briefly their financial objectives.
(10 Marks)

(b) Explain ways in which companies’ directors can be encouraged to achieve the objective of maximisation of shareholders’ wealth.
(5 Marks)

(Total 15 Marks)

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  • 20 Marks

FM – Nov 2017 – L3 – Q4 – Foreign Exchange Risk Management

Evaluate foreign exchange exposure, determine forward rates, assess hedging strategies, and discuss economic exposure significance for Kudi Limited.

You are the Financial Director of Kudi Limited, a Nigerian company that imports raw materials mainly from Tiko (currency: T$) and exports finished products to Katuga (currency: K$). Kudi is partly financed by a loan raised in the domestic market and usually hedges its foreign currency exposure using forward or money markets. Most customers are allowed a 3-month credit. The company recently sold products to a customer in Katuga for K$20 million.

Available Information:

Exchange Rate K$ per N T$ per N
Spot Rate 1.9600 1.4600
1 Month Forward 1.9580 1.4579
Central Bank Base Rate Per Annum Nigeria Katuga Tiko
Rate (%) 5.5% 4.25% 3.75%

Required:

(a) Comment on the Interest Rate Parity (IRP) and Purchasing Power Parity (PPP) methods for estimating exchange rates. (6 Marks)

In answering the following questions, include relevant calculations:

  1. Given that interest rates are higher in Nigeria than in Tiko, should T$ be depreciating against the naira and thus trading at a discount? (3 Marks)
  2. Determine the 3-month K$ forward rate of exchange implied by the given information and calculate the naira receipts expected in 3 months from the customer in Katuga. (3 Marks)
  3. Assess whether buying T$ on the spot market now and placing it on deposit would be a sensible policy for Kudi. (3 Marks)

(b) Discuss the concept and significance of foreign exchange economic exposure for a multinational company. (5 Marks)

(Total 20 Marks)

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