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MAB611S-MONEY AND BANKING -1ST OPP- JUNE 2024 |
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nAm I BIA un IVERSITY
OF SCIEnCE Ano TECHn OLOGY
FACULTY OF COMMERCE, HUMAN SCIENCESAND EDUCATION
DEPARTMENT OF ECONOMICS, ACCOUNTING AND FINANCE
QUALIFICATION: BACHELOR OF ECONOMICS
QUALIFICATION CODE: O7BEC0
LEVEL: 7
COURSE CODE: MAB611S
COURSE NAME: MONEY AND BANKING
SESSION: JUNE 2024
DURATION: 3 HOURS
PAPER: THEORY
MARKS: 100
FIRST OPPORTUNITY EXAMINATION QUESTION PAPER
EXAMINER(S) Ms Kasnath Kavezeri
MODERATOR: Mr Mally Likukela
INSTRUCTIONS
1. Answer ALLthe questions.
2. Write clearly and neatly.
3. Number the answers clearly.
PERMISSIBLE MATERIALS
1. Pens/pencils/erasers
2. Calculator
3. Ruler
THIS QUESTION PAPER CONSISTS OF 6 PAGES (Including this front page)
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QUESTION 1
[25 Marks]
Select the letter that best represents your choice.
1. You just bought a new car. In this transaction, you used money as a
(a) Form of credit.
(b) Source of income.
(c) Means of payment.
(d) Standard of value.
2. The price paid for the rental of borrowed funds (usually expressed as a percentage
of the rental of the amount per year) is commonly referred to as the
(a) Inflation rate.
(b) Exchange rate.
(c) Interest rate.
(d) Aggregate price level.
3. The Ml definition of money includes
(a) Currency outside banks plus checkable deposits and Eurodollars.
(b) Currency outside banks plus checkable deposits plus retail money market deposit
accounts.
(c) Currency outside banks plus checkable deposits plus traveler's checks.
(d) Currency outside banks plus checkable deposits plus small-denomination time deposits.
4. An asset that can be quickly turned into the medium of exchangewithout taking a loss
is said to be very
(a) Accountable.
(b) Liquid.
(c) Divisible.
(d) Profitable
5. Which of the following is the least liquid?
(a) A checking account
(b) A government bond
(c) A traveler's check
(d) A money market deposit account
6. A financial crisis is
(a) Not possible in the modern financial environment.
(b) A major disruption in the financial markets.
(c) A feature of developing economies only.
(d) Typically followed by an economic boom
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7. Banks are important to the study of money and the economy because they
(a) Channel funds from investors to savers.
(b) Have been a source of rapid financial innovation.
(c) Are the only important financial institution in the economy.
(d) Create inflation.
8. The management of money and interest rates is called ____
policy and is
conducted by a nation's ____
bank.
(a) Monetary; superior
(b) Fiscal; superior
(c) Fiscal; central
(d) Monetary; central
9. If the maturity of a debt instrument is lessthan one year, the debt is called
(a) Short-term.
(b) Intermediate-term.
(c) Long-term.
(d) Prima-term.
10. Which of ~e following statements about the characteristics of debt and equity is
FALSE?
(a) They can both be long-term financial instruments.
(b) They can both be short-term financial instruments.
(c) They both involve a claim on the issuer's income.
(d) They both enable a corporation to raise funds.
11. Equity holders are a corporation's ____ . That means the corporation must pay all
of its debt holders before it pays its equity holders.
(a) Debtors
(b) Brokers
(c) Residual claimants
(d) Underwriters
12. Which of the following benefits directly from any increase in the corporation's
profitability?
(a) A bond holder
(b) A commercial paper holder
(c) A shareholder
(d) A treasury bill holder
13. A financial market in which previously issued securities can be resold is called a
____
market.
(a) Primary
(b) Secondary
(c) Tertiary
(d) Used securities
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14. Which of the following is not a financial institution?
(a) A mutual fund
(b) An insurance company
(c) A pension fund
(d) A mining company
15. Equity instruments are traded in the ____
market.
(a) Money
(b) Bond
(c) Capital
(d) Commodities
16. Becausethese securities are more liquid and generally have smaller price fluctuations,
corporations and banks use the ____
securities to earn interest on temporary
surplus funds.
(a) Money market
(b) Capital market
(c) Bond market
(d) Stock market
17. Collateral is____
the lender receives if the borrower does not pay back the loan.
(a) A liability
(b) An asset
(c) A present
(d) An offering
18. Bondsthat are sold in a foreign country and are denominated in a currencyother than
that of the country in which it is sold are known as
(a) Foreign bonds.
(b) Eurobonds.
(c) Equity bonds.
(d) Country bonds.
19. The concept of diversification is captured by the statement
(a) Don't look a gift horse in the mouth.
(b) Don't put all your eggs in one basket.
(c) It never rains, but it pours.
(d) Make hay while the sun shines.
20. The problem created by asymmetric information before the transaction occurs is
called ___
_, while the problem created after the transaction occurs is called
(a) Adverse selection; moral hazard
(b) Moral hazard; adverse selection
(c) Costly state verification; free-riding
(d) Free-riding; costly state verification
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21. Adverse selection is a problem associated with equity and debt contracts arising from
(a) The lender's relative lack of information about the borrower's potential returns and
risks of his investment activities.
(b) The lender's inability to legally require sufficient collateral to cover a 100% loss if the
borrower defaults.
(c) The borrower's lack of incentive to seek a loan for highly risky investments.
(d) The borrower's lack of good options for obtaining funds.
22. Financial intermediaries are better equipped than individuals to screen out bad credit
risks from good ones, thus reducing losses due to
(a) Adverse selection.
(b) Moral hazard.
(c) Free-riding.
(d) Economies of scope.
23. For a commercial bank, a new loan is
(a) A reserve.
(b) Capital.
(c) A liability.
(d) An asset.
24. ____
is used to make purchases while ____
isthe total collection of pieces of
property that serve to store value.
(a) Money; income
(b) Wealth; income
(c) Income; money
(d) Money; wealth
25. A bank's excess reserves are equal to
(a) Total reserves minus required reserves.
(b) Demand deposits minus loans.
(c) Cash plus deposits at the central bank.
(d) Net worth.
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QUESTION Z
[ZS Marks]
1. Calculate the yearly coupon payment for a N$5,000 coupon bond with a coupon rate of
13%.
(3)
2. What do we call a credit market instrument that provides the borrower with an amount
of funds that must be repaid at the maturity date along with an interest payment? (1)
3. What is the return on a 5% coupon bond that initially sells for N$1,000 and sells for
N$900 next year?
(3)
4. Calculate the amount to be repaid for a 3-year simple loan of N$10,000 at 10 percent.
(3)
5. If a N$10,000 face-value discount bond maturing in one year is selling for N$8,000, then
what is its yield to maturity?
(3)
6. Briefly discuss and illustrate with a diagram how the bond market would respond to an
increase in the expected rate of inflation.
(12)
QUESTION 3
[ZS Marks]
1. Name two entities through which the government regulates the Namibian financial
sector.
(2)
2. Differentiate between direct and indirect finance
(4)
3. Name three examples of financial intermediaries that operate in Namibia.
(3)
4. Is everybody in the economy worse off when interest rates rise? Explain.
(3)
5. List five criteria that a commodity should possess to be used as money.
(5)
6. If a bank experiences high deposit outflows to the extent that all its reserves are
completely wiped out, what action should the managers of the bank take to raise the
necessary reserves? Also state the cost of each action.
(8)
QUESTION 4
[ZS Marks]
1. Name the three stakeholders in the money supply process.
(3)
2. Briefly discuss three goals a bank pursues in managing its assets.
(6)
3. What three motives for holding money did Keynes consider in his liquidity preference
theory of the demand for real money balances? On the basis of these motives, what
variables did he think determined the demand for money?
(5)
4. Do bondholders fare better when the yield to maturity increases or when it decreases?
Why?
(5)
5. Discuss the factors that determine money demand under the portfolio theory. (6)
TOTAL = 100 MARKS
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