Subject: Financial Planning and Practice (Iobm-D210)

INSTITUTE OF BANKERS IN MALAWI

DIPLOMA IN BANKING EXAMINATION

SUBJECT: FINANCIAL PLANNING AND PRACTICE (IOBM-D210)

Date: Monday, 30th April, 2012

Time Allocated: 3 hours (8:00 am - 11:00 am)

INSTRUCTIONS TO CANDIDATES

1 This paper consists of TWO Sections, A and B.

2 Section A consists of 4 questions, each question carries 15 marks.

Answer ALL questions.

3 Section B consists of 4 questions, each question carries 20 marks. Answer ANY TWO questions.

4You will be allowed 10 minutes to go through the paper before the start of the examination when you may write on this paper but not in the answer book.

5Begin each answer on a new page.

6Please write your examination number on each answer book used. Answer sheets without examination numbers will not be marked.

7DO NOT open this question paper until instructed to do so.

SECTION A(60 MARKS)

Answer ALL questions from this section.

Question 1

(a) Mention and clearly explain the five important elements which every investor must have in mind when developing an investment strategy. (10 marks)

(b) What do you understand by the term “derivatives” and what is the significance of investing in such securities by an investor? (5 marks)

(Total 15 marks)

QUESTION 2

Write brief notes outlining at least five rights which a purchaser of a policy is entitled to know and state twoexamples of the information to be provided under each right. (15 marks)

(Total 15 marks)

QUESTION 3

(a)Outline at least seven known advantages or benefits which a client may enjoy as a result of personal financial planning (PFP). (7 marks)

(b)What alternative options are available to an insurer in a situation where the risk assessment on a particular individual appears to be relatively high? (6 marks)

(c)What do you understanding by the term “risk pooling”? (2 marks)

(Total 15 marks)

QUESTION 4

(a) Give at least four major reasons that make a conservative investor to buy preference shares as opposed to ordinary shares. (8 marks)

(b) Consider some of the disadvantages that a preference shareholder must be prepared to absorb. (6 marks)

(Total 15 marks)

SECTION B (40 MARKS)

AnswerANY TWOquestions from this section.

QUESTION 5

Chumachalero is a limited registered company that has been employing staff on contractual basis renewable every 3 years. Effective 1st June 2011, the company cancelled all the contracts and paid its employees lump sums from its gratuity fund and registered them on a new pension scheme.

(a)Recommend the type of policy which the employees should choose to invest the lump sums giving reasons for your choice. (10 marks)

(b)Why do most young people prefer to take an endowment policy instead of an ordinary policy? (10 marks)

(Total 20 marks)

QUESTION 6

John Bokoto was working as a financial controller in Dyeratu Enterprises and died last year at the age of 65 soon after retirement. He never prepared a will and now his children are at loggerheads with their uncles on property distribution.

(a)Explain the challenges that family members frequently face when breadwinnersdie intestate. (4 marks)

(b)What are the key issues to consider in order to create a valid will which would not later be challenged? (16 marks) (Total 20 marks)

QUESTION 7

Mabvuto Sangathe has just received notification that his application for a life policy has been turned down by the insurance company and he is deeply disturbed by this development.

(a)Explain to Mabvuto thefiveimportant areas that the insurance company looked into to arrive at the decision to reject this application. (10 marks)

(b)Mention the type of policies that are generally perceived to be of large amounts yet still considered necessary. Support your answer with reasons. (8 marks)

(c)What do you understand by the term ‘loading’ on a life policy? (2 marks)

(Total 20 marks)

QUESTION 8

“Successful financial planners can avoid objections by asking structured questions, listening to the answers and then asking for the questions, which build value and creates a desire for a solution”

(a)Explain some of the reasons that make prospective clients to give an objections to a sale on a new financial product . (6 marks)

(b)What advice would you give to a sales agent who is faced with an objection from a client he is fully convinced would benefit from a particular financial product? (8 marks)

(c)What are some of the guidelines that should be born in mind when explaining features of a new product? (6 marks)

(Total 20 marks)

END OF EXAMINATION PAPER