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Money And Banking Question Paper

Money And Banking

Course:Bachelor Of Commerce (Commerce)

Institution: Kabarak University question papers

Exam Year:2010

KABARAK
U
N
I
V ERSITY

UNIVERSITY EXAMINATIONS
2009/2010 ACADEMIC YEAR

FOR THE DEGREE OF BACHELOR OF
COMMERCE

COURSE CODE: FNCE: 313

COURSE TITLE: MONEY AND BANKING

STREAM:

Y3S1

DAY:

MONDAY

TIME:

2:00 – 4:00 P.M.

DATE:

22/03/2010

INSTRUCTIONS
1. Answer question one and any other two questions
2. Write your registration number clearly, be neat, brief to the point and show workings
where needed

PLEASE TURNOVER
Proposed marking guide for FNCE 313 20103 End Term Examination
Page 1 of 3

QUESTION 1

(Total Marks 30)
i.
Give a critical view on the evolution of money from ancient times to E-money era.

( 4 marks)
ii.
How would you classify primary and derivative money as used in the process of commercial
bank money creation?

( 6 marks)

iii.
Describe 5 roles of commercial banks that are found in the Kenyan economy. (5 marks)

iv.
Analyse 3 motives of holding cash as deliberated on by Lord John Maynard Keynes.

( 10 marks)
v.
Describe 5 functions of money in any contemporary given economy such as the Kenyan.

(5 marks)

QUESTION 2

(Total Marks 20)
Should monetary policy be determined by a legislated rule or by discretion of a monetary authority?
Support your answer.

( 20 marks)

QUESTION 3

(Total Marks 20)
i. From the point of view of a monetarist discuss the historical trend of the Eastern African Central
Banking System since 1919 to early 1966.

(10 Marks)

ii.
In 1988 the capital requirements established by the Bank for International Settlements
(BIS) in Basel, and later adopted by the 10 member states set the minimum capital as
specified as a percentage of the risk-weighted assets of the bank as shown in the table
below:

Asset
Risk Weight
Cash and equivalents
0
Government securities
0
Interbank loans
0.2
Mortgage loans
0.5
Ordinary loans
1.0
Standby letters of credit
1.0

The BIS rules set requirements on two categories of capital, Tier 1 capital and Total capital:
Tier 1 capital is the book value of its shares plus retained earnings.
Tier 2 capital is loan-loss reserves plus subordinated debt. **
Total capital is the sum of Tier 1 and Tier 2 capital.
Tier 1 capital must be at least 4% of total risk-weighted assets.
Total capital must be at least 8% of total risk-weighted assets.
**Subordinated debt is long term debt that, in case of insolvency, is paid off only after depositors and
other creditors have been paid. Thus it can be used like equity to provide those creditors some
protection against insolvency.

Proposed marking guide for FNCE 313 20103 End Term Examination
Page 2 of 3

Given are the Set Kotes Bank categories of Assets:
Asset
Amount in million Kenya shillings
Cash and equivalents
40
Government securities
80
Interbank loans
100
Mortgage loans
200
Ordinary loans
300
Standby letters of credit
80

Required
Estimate:
The total risk-weighted assets and advise the bank management on the size of T 1 capital and the
least size of total capital for the bank.

(10 marks)

QUESTION 4

(Total Marks 20)
i. Discuss 5 tools of monetary policy as used in Kenya to mange money in circulation (10 marks)

ii. With the assistance of an illustration elaborate on the creation of commercial bank money process
in any contemporary financial system like the Kenyan.

(10 marks)

QUESTION 5

(Total Marks 20)
i. Discuss the monetary policy operations in respect to the management of inflation. (10 marks)

iii. Discuss the 3 ways that World Bank uses to raise funds:

(10 marks)
Proposed marking guide for FNCE 313 20103 End Term Examination
Page 3 of 3

Money And Banking Question Paper

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