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Banking Law And Practice Question Paper
Banking Law And Practice
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2010
UNIVERSITY EXAMINATIONS: 2010/2011
THIRD YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CFM 304: BANKING LAW AND PRACTICE (SUNDAY)
DATE: DECEMBER 2010 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
a) When opening and dealing with a minor customer’s account, many issues require keen
consideration. Carefully isolate such issues, recommending measures to be taken by the banker
(6 marks)
b) Discuss ways in which a bill of exchange may be discharged? (8 marks)
c) The banking relationship revolves around the banker and the customer. Explain who is a customer
in the banker-customer relationship, stating his obligations (8 marks)
d) Explain the role of the bank in a developing economy (5marks)
e) Outline essential features of a promissory note (3 marks)
QUESTION TWO
a) Mr. and Mrs. B, (husband and wife) were the sole directors of a company whose bank overdraft
was guaranteed by Mr. B. Knowing the company to be insolvent, they made payment of the
company’s money to the bank, thus extinguishing the overdraft and freeing Mr. B from liability as
a guarantor. During this period, no payments were made to the company’s creditors including Joy,
who now seeks your advice.
(5 marks)
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b) Explain what is meant by banking business (6 marks)
c) Explain the various ways by which banks finance commercial dealings, with special reference to
foreign trade (5 marks)
QUESTION THREE
a) Explain the nature and effect of a garnishee order on a customer’s account (10 marks)
b) Discuss the factors which lead to the termination of the banker-customer relationship (6 marks).
c) What are the advantages of a legal over equitable mortgage as security applicable in bank
advances? (4 marks)
QUESTION FOUR
State the legal position and advice accordingly in the following circumstances, explaining exceptions if
any
a) Jon had overdrawn his account at Dibuy Bank after being authorized to do so and in turn, made
arrangements with the manager of the branch to pay the money owed in installments. He however
failed to pay the installments as agreed. The manager of the bank being worried by Jon’s default
telephoned Jon in his office, but failed to find Jon. The person he talked to asked if he could take
any message for Jon. In the message, the Manager mentioned that Jon’s account was overdrawn
and some of the cheques Jon had written in relation to that account had been drawn in the name of
beer-manufacturing company. When Jon’s employer heard that he was involved with a beermanufacturing
company, they dismissed him summarily. (10 marks)
b) Jon’s bank issued him his bank statement which indicated Jon’s account to have a balance of Kshs
88,000. On the basis of this entry, Jon drew a cheque in favour of Rhona for Kshs. 50,000.When
the cheque was presented for payment, the Jon’s bank dishonoured it claiming that Jon’s account
indeed had only Kshs.48, 000.
c) Forged cheques were presented to Jon’s bank in respect to Jon’s account. The cheques were
honoured by Jon’s bank. The bank routinely sent statements to the all their customers including Jon
who actually looked through his statement, ticking out the ‘suspect’ entries before returning it to
the bank. He however did not further indicate to the bank that in fact there were forgeries against
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his account. Several months later, he decided to inquire from the bank about the irregularities with
regard to his account. The bank did nothing about Jon’s complaints. (5 marks)
QUESTION FIVE
Write short explanatory notes on;
a) Banker’s right of lien (5 marks)
b) The measures taken by the Central Bank of Kenya in controlling and regulating the
establishment and general operation of commercial banks as provided by law
(10 marks)
c) The significance and types of crossings on cheques (5 marks)
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