Subject: Introduction to Banking (Iobm C104)

INSTITUTE OF BANKERS IN MALAWI

CERTIFICATE IN BANKING EXAMINATION

SUBJECT: INTRODUCTION TO BANKING (IOBM – C104)

Date: Tuesday, 1st May 2012

Time Allocated: 3 hours (08:00 – 11:00 am)

INSTRUCTIONS TO CANDIDATES

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

2 Section A consists of 30 multiple questions, each question carries 2 marks.

Answer ALL questions.

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

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

5 Begin each answer on a new page.

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

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

SECTION A (60 MARKS)

Answer ALL questions from this section.

1. A person will qualify to be a bank customer if he satisfies the following as a condition:

(a) Maintains an account with a bank.

(b) Regularly makes deposits and withdraws at a particular branch on behalf on his employer.

(d) Has good balances in his account.

2. A bank should not compulsorily close a customer’s account unless:

(a) The customer is known to be a thief

(b) The bank gives reasonable notice to allow customer make alternative banking arrangements

(d) The customer is linked with money laundering activities.

3. The duty of confidentiality demands that a banker should not divulge any information on the customer’s account except in one of the following cases

(a) Customer is fond of issuing cheques against uncleared funds

(b) Customer is a minor without legal capacity to conduct a bank account

(d) Customer’s conduct is posing a threat to national security.

4. Customers can play a role to assist the bank in preventing fraudulent transactions and one such role would be to:

(a) Closing the account each time a fraudulent transaction is suspected

(b) Issuing post-dated cheques

(d) Informing the bank without delay if he discovers cheques that appear to have been forged.

5. Which of the following statements is true about a savings account?

(a) Savings accounts are good for people living in the rural areas

(b) Savings accounts assist countries to mobilize foreign exchange

(d) Savings account assist to fight inflation in an economy.

6. Bank C has a balance of MWK975,856,865.36 with RBM, and its LRR is MWK1,256,879,897.32. What action should Bank C take?

(a) Close the bank

(b) Stop any further withdraws

(d) Wait for a caution from RBM.

7. One of the following statements is not true about general clearing rules

(a) Once cheques are accepted for clearing, value is obtained the same day

(b) Cheques are scanned and cleared through to the drawer’s bank in form of images

(d) Settlement of values of cheques exchanged is done through accounts maintained at the Reserve Bank of Malawi.

8. Choose one reason that contributed to the failure of barter trade to remain popular as a means of exchange.

(a) Traders were deliberately giving each other rotten items

(b) Most traders could not accept animals to exchange their commodities with

(d) The system required that traders should know each other personally to avoid cheating.

9. A drawer on a cheque is a person who has:

(a) Signed the cheque

(b) Will receive payment on the cheque

(d) Reported a forgery on a bill of exchange.

10. Identify a correct list of different types of endorsements

(a) Simple endorsement, endorsement in blank, restrictive endorsement and qualified endorsement

(b) Simple endorsement, endorsement in blank, restrictive endorsement and qualified endorsement

(d) Simple endorsement, special endorsement, restrictive endorsement and qualified endorsement.

11. One of the following statements is true about the usage and significance of a crossing on a cheque.

(a) Crossings prevents encashment of cheques over the counter

(b) Crossings are necessary when dealing with cheques with large amounts

(d) Crossings are necessary on company cheques only.

12. Why should the authorities control money supply?

(a) Uncontrolled money supply causes currency devaluations

(b) Uncontrolled money supply causes instability of prices of goods and services in an economy

(d) Uncontrolled money supply is only good for businesses in the private sector.

13. Which of the following assets are traded on the secondary market?

(a) Stocks, shares and treasury bills

(b) Stocks, fixed deposits, or treasury bills

(d) Stocks, shares and overdrafts.

14. What is the name of the policy which the authorities implement to ensure proper functioning of the financial system in an economy?

(a) Fiscal policy

(b) Monetary policy

(d) Financial policy.

15. Mention the rate which the Central Bank uses when lending to banks as a lender of last resort.

(a) Overdraft interest lending rate

(b) Fixed deposit interest rate

(d) Treasury bills rate.

16. Excess liquidity can cause inflation and the Central Bank tries to control it using one of the tactics:

(a) Open Market Operation

(b) Printing less currency notes

(d) Encouraging people to use plastic money or electronic transfers.

17. Banks that fail to observe Know Your Customer (KYC) procedures risk to be slapped with the following punishment

(a) Pay fine of MK100,000 plus 2 years imprisonment

(b) Pay fine of MK500,000 plus loss of business licence

(d) Pay fine of MK15,000,000 plus loss of business licence.

18. What period (s) are treasury bills classified in?

(a) 91 days only

(b) 73 days and 146 days only

(d) 90 days, 180 days, 270 days and 360 days only.

19. Name the step that bankers extract information to determine the level of income of a prospective customer when opening an account

(a) Customer screening

(b) Customer identification

(d) Customer profiling.

20. The most important aspect employers in service industry must emphasize to their employees in order not to lose customers is

(a) Positive attitude of staff towards customers

(b) Incentives to customers

(d) Improved technology.

21. The name of the market where companies raise long term funds for the investments

(a) Money Market

(b) Foreign Direct Investments (FDI)

(d) Capital Market.

22. The process which has been responsible for growth of money supply through banks lending is

(a) Loans

(b) Overdrafts

(d) Discounting.

23. The cheque which customers get when paying for goods and services in the currency of another country.

(a) Bank certified cheque.

(b) Promissory note.

(d) Telegraphic transfer.

24. A service customer will require ------when asking for immediate clearance of a cheque drawn in the same city.

(a) Special clearance

(b) SWIFT

(d) Cashing credits.

25. Facility which will allow customers’ cheques to be readily acceptable by merchants and other service providers as long as the banks conditions are met is

(a) Bankers status report

(b) Performance bond

(d) Credit card.

26. What is the minimum investment amount on a REPO?

(a) K250,000

(b) K10,000

(d) K100,000.

27. A Word referring to a cheque that was issued more than 6 months ago and cannot be accepted for payment.

(a) Past due

(b) Overdue

(d) Stale.

28. The motive that drives people to hold money to help them meet unforeseeable monetary obligations is:

(a) Speculative motive

(b) Precautionary motive

(d) Gambling motive.

29. The role which banks play in the economy by mobilizing deposits from surplus units to make it available to deficit units is:

(a) Financial intermediation

(b) Financial integration

(d) Investment financing.

30. The wording in a crossing which signifies that the cheque has lost all the elements of transferability and negotiability is:

(a) Account payee only

(b) Not negotiable

(d) & Company.

SECTION B (40 MARKS)

Answer ANY TWO questions from this section.

QUESTION 1

(a) Explain in detail what banks should do in order to help in the fight against money laundering. (10 marks)

(b) What are the known evils of money laundering which would support the assertion that money laundering adversely affects the economic development of a country (10 marks)

(Total 20 marks)

QUESTION 2

All forms of money have common attributes which help them to fulfill the functions of money as a medium of exchange. Write brief notes on any five attributes of money and for each attribute, explain how present day forms of money are superior to money used in the barter trade era. (Total 20 marks)

QUESTION 3

You have been approached by a tobacco farmer who has for so many years been operating a savings account and now wants to open a current account.

Required:

(a) Explain the advantages of a current account which are unique and not available to a savings account. (14 marks)

(b) Write short notes on the following:-

(i) Full bodied money (2 marks)

(ii) Credit money (2 marks)

(iii) Fiat money (2 marks)

(Total 20 marks)

QUESTION 4

You have been asked by your manager to give a talk on things that should be avoided or born in mind in order to provide superior customer service. As you prepare, list at least ten points and support each point with well thought through facts. (Total 20 marks)

END OF EXAMINATION PAPER

A qualification examined by the Institute of Bankers in Malawi