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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
UNIVERSITY
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:

FRIDAY
TIME:

9.00 – 11.00 A.M.
DATE:

13/08/2010

INSTRUCTIONS
1. Answer questions ONE and any other TWO questions
2. Write your registration number clearly, be neat, brief and show all the workings

PLEASE TURNOVER
Page 1 of 3

QUESTION ONE

(Total marks 30)

i. Give a critical view on the evolution of money

(10 marks)
ii. Describe the following classes of metallic money:

a) Standard money

(2 marks)
b) Token money

(2 marks)
c) Subsidiary money

(2 marks)

iii. Discuss 5 tools of monetary policy as used in Kenya to mange the money in circulation. (10marks)

iv. There are two types of money in a fractional-reserve banking system. Describe this statement in
relation to the trends of the supply of money in an economy like the Kenyan.
(4 marks)

QUESTION TWO

(Total Marks 20)

Should monetary policy be determined by a legislated rule or by discretion of a monetary authority?

QUESTION THREE

(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 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.
Page 2 of 3

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. This can therefore, be used like equity to provide creditors with some
protection against insolvency.

Given are the XYZ Bank categories of Assets:
Asset
Amount in 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 give pieces of advice to the bank management on the size of T 1
capital and the least size of total capital for the bank.

(10marks)

QUESTION FOUR

(Total Marks 20)
i. Discuss monetary policy operations in respect to demand –pull and cost-push inflations. (10marks)

ii. Citing examples in the Kenyan financial system, describe an Islamic banking system. (10marks)

QUESTION FIVE

i. Give a survey of the Kenyan commercial banking system since 1896.

(10marks)

ii. Describe the money multiplier in respect to monetary base and the money supply. (5marks)

iii. With the initial deposit of 100 Kenya shillings and 10% reserve requirement ratio describe
deposit expansion multiplier.

( 5marks)

Page 3 of 3

Money And Banking Question Paper

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