QUESTION ONE (15 MARKS)
NIC Bank a Kenyan firm has invested in Kampala Uganda as per the balance sheet shown below. The figures are stated in Uganda shillings.
a) Discuss the major risks that NIC is exposed to. (8marks)
b) Explain with appropriate local examples the moral hazard concept in financial intermediation. (3 marks)
c) If the exchange rate on 30th June was Uganda Shillings 25 for every Kenyan shilling (1 Kshs=Ush 25), using the data provided on the NIC balance sheet show the effects of devaluation of Uganda shilling by 4% on NIC’s balance sheet in Kenya shillings. (4 marks)
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