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Bcom 430: Management Of Financial Institutions Question Paper
Bcom 430: Management Of Financial Institutions
Course:Bachelor Of Commerce
Institution: Chuka University question papers
Exam Year:2013
CHUKA
UNIVERSITY
UNIVERSITY EXAMINATIONS
FOURTH YEAR EXAMINATION FOR THE AWARD OF
DEGREE OF BACHELOR OF COMMERCE
BCOM 430: MANAGEMENT OF FINANCIAL INSTITUTIONS
STREAMS: BCOM Y4S1 TIME: 2 HOURS
DAY/DATE: FRIDAY 9/8/2013 2.30 PM – 4.30 PM
INSTRUCTIONS:
Answer Question ONE and any other TWO Questions
Show all your workings
Do not write on the question paper.
QUESTION ONE
(a) Discuss the various financial institutions regulators in Kenya showing their specific roles and the institutions they regulate. [12 Marks]
(b) Consider the following summary report of a certain financial institution:
Repricing gaps for an FI (M Dollars)
Assets Liabilities Gap
1 day 20 30 10
More than I day – 3 months 30 40 10
More than 3 months – 6 months 70 85 15
More than 6 months – 12 months 90 70 20
More than 1 year – 5 years 40 30 10
More than 5 years 10 5 5
Also assume that short term interest rates rise by 2 percent. The initial interest rate was 10% before the rise.
(i) Compute the annualized change in the financial institution’s future net interest income in the first bucket. [2 Marks]
(ii) Estimate the cumulative gaps over various repricing categories or buckets.
[2 Marks]
(iii) If ?R_i is the average interest rate change affecting assets and liabilities that can be repriced within a year. Compute the cumulative effect on the bank’s interest income. [3 Marks]
(c) Briefly discuss the current financial regulatory market structure in Kenya. [6 Marks]
(d) “There appears to be regulatory gaps in Kenya.” Discuss and state your position.
[5 Marks]
QUESTION TWO
(a) “The core mandate of Bank supervision Department (BSD) is to foster liquidity, solvency and proper functioning of a stable market-based financial system as stipulated under section 4(2) of the central Bank of Kenya Act”. Discuss. [8 Marks]
(b) Assume the book value of assets of a certain bank are as follows:
Book value
Assets (millions)
Government Treasury Bills 400
Obligation 300
Mortgages 400
Commercial Loans 300
Also, you are given credit risk classification as 0%, 20%, 50% and 100% respectively. Assuming that Tier 1 capital requirement is 8% of the book value of assets and the minimum total capital requirement is 16% of the risk weighted assets, determine the following fiving managerial comment.
(i) The risk weighted assets [3 Marks]
(ii) Minimum core capital requirement [1 Mark]
(iii) Minimum total capital requirements [1 Mark]
(c) In the recent past, we have experienced series global financial crises. Briefly explain the lessons that we can learn as regulators of financial institutions and markets.
[7 Marks]
QUESTION THREE
(a) Financial institutions face a myriad of risks during their operations. Using examples discuss five types of these risks and suggest their possible solutions. [10 Marks]
(b) There has been a discussion that regulation of financial institutions and markets in Kenya should be consolidated. Discuss the case for and against consolidation. State your position. [10 Marks]
QUESTION FOUR
(a) Using examples discuss how financial institutions in Kenya are addressing governance issues. [10 Marks]
(b) State and briefly explain the principles of financial sector regulation. [10Marks]
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