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MAB611S- MONEY AND BANKING- 1ST OPP- JUNE 2023 |
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nAm I BI A un IVERS ITV
OF SCIEn CE 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 2023
DURATION: 3 HOURS
PAPER: THEORY
MARKS: 100
FIRST OPPORTUNITY EXAMINATION QUESTION PAPER
EXAMINER(S) Mr Eslon Ngeendepi
MODERATOR: Mr Mally Likukela
INSTRUCTIONS
1. Answer ALL the 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 10 PAGES (Including this front page)
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QUESTION 1
[20 Marks]
Select the letter that best represents your choice.
1.1 Financial markets promote greater economic efficiency by channeling funds from
____
to ___ _
a) investors; savers
b) borrowers; savers
c) savers; borrowers
d) savers; lenders
1.2 When we say that income is a flow variable, we mean that:
a) we must attach a time period to the measure for it to make sense.
b) it is measured at a given point in time.
c) it moves through our hands quickly.
d) the value is constantly changing.
1.3 A share of common stock is a claim on a corporation's:
a) debt.
b) liabilities.
c) expenses.
d) earnings and assets.
1.4 A continuing increase in the growth of the money supply is likely followed by:
a) a recession.
b) a depression.
c) an increase in the price level.
d) no change in the economy.
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Figure 1: Supply and demand for bonds equilibrium
Interest
Rate
Quantity of Money, M
1.5 In the figure above, the factor responsiblefor the decline in the interest rate is:
a) a decline the price level.
b) a decline in income.
c) an increase in the money supply.
d) a decline in the expected inflation rate.
Figure 2: Demand and supply of bonds
Interest
Rate
Quantity of Money,M
1.6 the figure above, one factor NOT responsiblefor the declinein the demand for money
is:
a) a decline the price level.
b) a decline in income.
c) an increase in income.
d) a decline in the expected inflation rate.
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1.7 What is the annual interest payment on a N$1 million bond with a coupon rate of 8
per cent and a yield-to-maturity (YTM) of 10 per cent?
a) N$40 000
b) N$50 000
c) N$80 000
d) N$100 000
1.8 What is the primary distinguishingfactor between the money market and the bond
market?
a) Minimum investment amount
b) Source of income from instruments
c) Method of trading
d) Maturity of instruments
1.9 Which of the following markets are considered to be over-the-counter markets in
Namibia?
i. The Money market
ii. The foreign exchange market
iii. The equity market
iv. The bond market
a)
(i) and (ii) only
b)
(iii) and (iv) only
c)
(ii) and (iii) only
d)
(i), (iii) and (iv) only
1.10 Which ONE of the following statements with regardto the financial markets iscorrect?
a) The equity market is also referred to as the fixed-income market.
b) The share market and the money market together form the capital market.
c)
The retail foreign exchange market is as large asthe wholesale foreign exchange
market.
d) The bond market is the market for marketable long-term debt instruments.
1.11 Which ONE of the following rates is the reference rate for all other rates in the
Namibian financial system?
a)
Prime lending rate
b) Call deposit rate
c)
Interbank loan rate
d)
Central bank repo rate
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1.12 Which of the following statements with regardto the financial system are correct?The
financial system:
i.
channels savings into investment through time and across industries
ii.
assist investment decisions by providing information to the public
iii. allows households to participate in investments that require large sums of
money
iv. ensures that funds are allocated to borrowers that will utilize the funds
prudently
a) (ii) and (iv) only
b) (i), (ii) and (iii) only
c) (i), (iii) and (iv) only
d) (i), (ii), (iii) and (iv)
1.13 What is the main reason for the SARB'soperations in the financial markets?
a) Diversification of the government asset portfolio
b) Investment of short-term deposits for the public sector
c) Implementation of the interest rate policy
d) Management of the official foreign exchange reserves
1.14 Which of the following actions are likely to cause a decline in demand deposits
held with banks?
i.
the central bank raise the statutory reserve requirement.
ii.
the central bank sells securities via open-market operations.
iii. the central bank lowers the statutory reserve requirement.
iv. the central bank buys securities via open-market-operations.
a) (i) and (ii) only
b) (iii) and (iv) only
c) (i), (ii) and (iii) only
d) (i), (iii) and (iv) only
1.15 Bankers' concerns regarding the optimal mix of excess reserves, secondary reserves,
borrowings from the central bank, and borrowings from other banks to deal with
deposit outflows is an example of
a) liability management.
b) liquidity management.
c) managing interest rate risk.
d) managing credit risk.
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1.16 A bank failure occurs whenever
a) a bank cannot satisfy its obligations to pay its depositors and other creditors.
b) a bank suffers a large deposit outflow.
c) a bank has to call in a large volume of loans.
d) a bank refuses to make new loans.
1.17 The M2 money supply is represented by
a) M2= l+c+t+mmxMB.
rr + e + c
b) M 2 = 1 + c + t + mm x _1__
rr+ e + c
MB
c) MB= 1 + c + t + mm x M2.
rr + e + c
d) MB = rr + e + c x _1_
1 + c + t + mm M2 ·
1.18 The three players in the money supply process include:
a) banks, depositors, and the Ministry of Finance.
b) banks, depositors, and borrowers.
c) banks, depositors, and the central bank.
d) banks, borrowers, and the central bank.
1.19 The quantity of reserves supplied equals
a) nonborrowed reserves minus borrowed reserves.
b) nonborrowed reserves plus borrowed reserves.
c) required reserves plus borrowed reserves.
d) total reserves minus required reserves.
1.20 A nominal variable, such as the inflation rate or the money supply, which ties down
the price level to achieve price stability is called ____
anchor.
a) a nominal
b) a real
c) an operating
d) an intermediate
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SECTION B
15 Marks
QUESTION 1
a) Name the four broad sectors of the economy that participate as both ultimate
borrowers and ultimate lenders within the financial system.
{2)
b) Why do financial intermediaries exist within the financial system?
(2)
c) Differentiate between the primary and the secondary bond market.
{2)
QUESTION 2
a) Assume you just deposited N$1,250 into a bank account. The current real interest rate is
1%, and the expected rate of inflation over the next year is 5%. What nominal interest
rate should the bank charge you over the next year?
(3)
b) What is the yield to maturity on a N$10,000-face-value discount bond, maturing in one
year, which sells for N$9,523.81?
(3)
c) What is the price of a perpetuity that has a coupon of N$70 per year and a yield to
maturity of 1.5%? If the yield to maturity doubles, what will happen to the perpetuity's
price?
(3)
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SECTION C
15 Marks
QUESTION 1
a) Based on readings from Sheefeni (2017), what the four monetary transmission
mechanism channels in Namibia?
(4)
b) Bonds are debt instruments through which finance for infrastructure development can
be raised. African governments and businessescan select from different types of bonds
to find the best vehicle for raising capital (Oji, 2015).
i. According to Oji (2015), list six major bonds traded by African governments. (7)
c) Based on the 2022 Namibian financial stability report identify two main banking sector
risk.
(2)
d) What is the main purpose of the Namibian financial stability report?
(2)
SECTION D
30 Marks
QUESTION 1
a) Rank the following bank assets from most to least liquid:
(4)
i. Commercial loans
ii. Securities
iii. Reserves
iv. Physical capital
b) If a bank is falling short of meeting its capital requirements by N$1 million, what three
things can it do to rectify the situation?
(3)
c) Absa Bank reported an ROEof 17% and an ROAof 2.32%. What is the equity multiplier?
How well capitalized is this bank?
(4)
d) What steps can the government take to reduce asymmetric information problems and
help the financial system function more smoothly and efficiently?
(4)
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QUESTION 2
a) What are the disadvantages of using loans to financial institutions to prevent bank
panics?
(6)
b) List two advantages and disadvantages of quantitative easing as an alternative to
conventional monetary policy.
(4)
c) William does not feel comfortable with the current level of the European Central Bank's
independence. Put yourself in William's shoes and state arguments used against
independence of Central Bank's.
(5)
SECTION E
20 Marks
QUESTION 1
i. What does the Taylor rule imply that policymakers should do to the fed funds rate
under the following scenarios?
a) Unemployment rises due to a recession.
(1)
b) An oil price shock causesthe inflation rate to rise by 1%and output to fall by 1%. (1)
c) The economy experiences prolonged increases in productivity growth while actual
output growth is unchanged.
(1)
d) Potential output declines while actual output remains unchanged.
(1)
e) The Fed revises its (implicit) inflation target downward.
(1)
f) The equilibrium real fed funds rate decreases.
(1)
ii. Why would it be problematic for a central bank to have a primary goal of maximizing
economic growth?
(3)
iii. What are the benefits of using a nominal anchor for the conduct of monetary policy?(3)
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iv. Classify each of the following as either a policy instrument or an intermediary target.
Explain your answer.
a) Long-term interest rates.
(2)
b) Central bank interest rates.
(2)
c) M2
(2)
d) Reserve requirements
(2)
TOTAL= 100 MARKS
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