SCHOOL OF MANAGEMENT SCIENCES

DEPARTMENT OF ACCOUNTING
2022/2023 SUMMER SEMESTER EXAMINATION

ACCT 406: International Corporate Finance 3 Credits

Examiner: Dr. Ogundajo, G. O. Total Marks: 60
Date: August 29, 2023 Time Allowed: 2 hours

INSTRUCTIONS
1. Attempt the compulsory question in Section A, TWO in Section B and ONE in
Section C.
2. Students are not required to write their names on the answer Sheets/Booklets.

SECTION A - COMPULSORY (20 Marks)

QUESTION ONE
a. XYZ Alternative Goods Ltd. is importing a container loads of 400 second-hand Insulators
at $120 per insulators. The company has two options:
Option 1: To pay cash now in order to enjoy trade discount of 5%. In this event, the funds
would be sourced at the prevailing lending rate of 40% in Lagos from the Bank; that is the
Bank is to sell the dollars to XYZ Alternative Goods Ltd which is repayable in 3 months’
time
Option 2: To pay in three months and cover the exchange risk forward in the forward
exchange market.
Exchange rates:
$1/N 875.6450 – 880.9610
1month 5.4518 – 7.0100 premium
2months 10.5000 – 11.9050 premium
3months 12.0000 – 12.5080 premium
Required: Using the given exchange rates quotation and assuming a clearing cost of the
container is N500,000, advise the company on which of the options to opt for considering the
total cost. SUB-TOTAL (10marks)
b. Central Bank of Nigeria (CBN) by the Foreign Exchange (Monitoring and Miscellaneous
Provisions) Act no 17 of 1995 is the main authority for exchange control regulations in
Nigeria. Explain why CBN has been restricting public access to foreign exchange reserves
SUB-TOTAL 10marks
TOTAL 20marks

1
Section B (Attempt any two (2) Questions in this Section. 15 marks each = 30marks)
QUESTION TWO
a. International finance played major roles in international trade and business. Discuss
SUB-TOTAL 5marks
b. Discuss reasons why countries trade among themselves (5marks)
c. Recently in Nigeria, there has been scarcity of foreign currencies due to high demand.
This has led to the “CBN Naira for Dollar Scheme” incentives for Senders and
Recipients of International Money Transfers which lapsed on 8 th May, 2023. Based on
your knowledge of International Corporate Finance, discuss the causes of this high
demand
SUB-TOTAL (5marks)
TOTAL 15marks
QUESTION THREE
a. To understand the pattern in international trade, different trade theories are postulated
and are categorized into classical country-based theories and modern firm-based
theories.
Required: Discuss:
i. Theory of absolute cost advantage (3marks)
ii. Theory of comparative advantage (3marks)
iii. Theory of Mercantilism (3 marks)
SUB-TOTAL 9marks
b. Benin Republic and Nigeria are major producers of Cocoa and Palm kernel in the
West Africa. Benin Republic has the capacity to produce 10million tonnes of Cocoa
and 5million tonnes of Palm kernel; while Nigeria has the capacity to produce
8million tonnes of cocoa and 2million tonnes of Palm kernel with their available
resources.
Required: Use the scenario to explain the concept of:
 Absolute Advantage (3marks)
 Comparative Advantage (3marks)
SUB-TOTAL 6marks
TOTAL 15marks

QUESTION FOUR
Nigerian Government is interested in enabling Naira to have its full convertibility. As the
Consultant, the Central Bank of Nigeria (CBN) has contacted you for advisory service on
required process to achieve this goal.
Required: Prepare a briefing note to the CBN on the criteria for Naira to be acceptable
as a convertible currency. (9marks)
b. Discuss four (4) advantages and four (4) disadvantages of full convertibility (6marks)
TOTAL 15marks

2
Section C (Attempt any one question in this section 10marks)
QUESTION FIVE
a. In the recent foreign exchange bidding made by the listed banks, the banks bidding
rates and the demand are as follows: Access: $120m @ N405; Sterling: $220m @
N435; GTB: $180m @ N415; Zenith: $150m @ N410; FBN: $130m @ N425;
Stanbic IBTC: $175m @ N405.25; FCMB: $280m @ N435.75; UBA: $110m @
N418.25; UBN: $55m @ N411; Fidelity: $145m @ N428.50; Wema: $85m @
N422.50; Eco Bank: $115m @ N421.50; and JAIZ: $90m @ N428.50. CBN made
available $1,500m for the bidding.
Determine the:
i. Effective rate
ii. Buying rate
iii. Selling rate
iv. Marginal rate for the banks using:
Average Pricing method (2½marks)
Dutch Auction System Method (5marks)
Modified Dutch Auction System Method (weighted average) (2½marks)
SUB-TOTAL 10marks
QUESTION SIX
The current Naira to Dollar exchange rate has called for suggestion by the policymakers for
the revaluation of Naira. Discuss the necessary adjustments required to achieve this
TOTAL 10marks