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Elements Of Banking November 2007 Question Paper
Elements Of Banking November 2007
Course:Diploma In Banking (Banking)
Institution: question papers
Exam Year:2007
ELEMENTS OF BANKING
November 2007
Time: 3 hours
DIPLOMA IN MANAGEMENT PART I
INSTRUCTIONS TO CANDIDATES
1.Answer any FIVE of the SEVEN questions.
2.All questions carry equal marks.
3.Show all your working.
This paper consists of 3 printed pages.
Candidates should check the question paper to ascertain that all the pages are printed as indicated and no questions are missing.
1.(a) Highlight the advantages of electronic banking to:
(i) the bank; (5 marks)
(ii) the customer.(5 marks)
(b) Explain the ways in which interest rates affect the ability of money to perform its functions.(10 marks)
2.(a) State five ways in which the bills of Exchange Act Cap 27 permits a holder of a cheque to alter the crossing thereof.(10 marks)
(b) Explain five methods that the Central Bank of Kenya may use to restrict commercial bank lending.(10 marks)
3.(a) A week ago you received instructions from your customer, Christopher Chege, stopping one of his cheques. He claimed that he had misplaced the cheques and that he intended to issue a replacement to the payee.
Eventually, the cheque was presented through clearing. The cheque bore no crossing but at the back it carried a signature unknown to you. You followed your customer's instructions and returned the cheque with remarks 'cheque countermanded by drawer.'.
This morning, by appointment, Christopher Chege calls into your office with a letter he has received from Wakili & Wakili Advocates stating that they intend to take legal action to recover money that their client had given to the payee against the cheque. This is on the basis that their client is a holder in due course. Mr Chege does not understand all these and he requests for your advice.
Giving reasons, explain whether or not Mr Chege could have a right to the funds.(12 marks)
(b) Explain the relationship between the role of the early goldsmiths and that of the present day commercial banks.(8 marks)
4.(a) Highlight five tasks performed by the Central Bank of Kenya as a banker to commercial banks.(8 marks)
(b) Your customer, Mr Nathaniel Mjomba, wishes to make the following payments:
(i) regular monthly payments of inconsistent amounts;
(ii) motor car fuel expenses.
In each case, recommend to Mr Mjomba the most convenient method of payment that your bank can offer stating the benefits of each to the customer.(12 marks)
5.(a) Highlight five services that may be offered by a trustee department of a commercial bank.(8 marks)
(b) Describe the ethical standards that bank employees should observe in discharging their professional duties.(12 marks)
6.(a) Highlight the risks faced by a lending bank in an open-ended bridging loan.(12 marks)
(b) Explain four methods of settlement in international trade through the banking system.(8 marks)
7.(a) The following data reflects the accounts of a posho mill.
BALANCE SHEET AS AT 31 DECEMBER 2006
Ksh (millions)
Net assets-------------------------------------------------5.8
Stocks-----------------------------------------------------4.2
Debtors---------------------------------------------------1.6
Bank balance--------------------------------------------(2.6)
Creditors--------------------------------------------------1.4
Ord. Share of Ksh 2.50 fully paid--------------------2.8
Retained profits------------------------------------------1.8
PROFIT AND LOSS ACCOUNT FOR YEAR ENDED 31 DECEMBER 2006
Ksh (millions)
Sales---------------------------------------------------------------------------10.0
Profit before interest & tax----------------------------------------------2.2
Bank interest (net paid)-------------------------------------------------1.0
Taxation (rebate)---------------------------------------------------------0.4
Dividend------------------------------------------------------------------0.8
Using the above information, calculate each of the following ratios and identify the key area of performance to which they relate:
(i) Return on equity;
(ii) Current ratio;
(iii) Debtor turnover.(12 marks)
(b) Explain the Central Bank of Kenya prudential requirements that commercial banks must comply with.(8 marks)
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