INSTITUTE OF BANKERS IN MALAWI
CERTIFICATE IN BANKING EXAMINATIONS
MAY 2011
SUBJECT: INTRODUCTION TO BANKING (IOBM – C104)
SECTION A
QUESTION 1
a. In relation to the bankers’ obligation towards customers, explain what your advice
would be in each of the following circumstances:
i. enquiries for account balances over the phone
3 marks
ii. compulsory closure of a bank account due to customers misconduct in operating
an account such as frequent issuance of cheques when there are insufficient
funds in the account
3 marks
iii. a notice in the daily papers that your bank has decided to stop sending
statements to its customers as one way of cutting running costs for the bank.
3 marks
b.
Explain what you understand by the term Financial intermediation 3 marks
c.
How does financial intermediation assist in the economic development of a
country
3marks
TOTAL MARKS 15
ANSWERS TO QUESTION 1
A
i.
Telephone enquiries are not allowed as that would be a breach of secrecy. The
only exception would arise where the voice of the enquirer is known and there is
no doubt about his identity.
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ii.
The bank is obliged to give reasonable notice whenever it decides to close a
account so as to let him make alternative banking arrangements unless the
offence being committed would injure the bank or the general public
iii
The bank is obliged to provide statements to customers so that they keep track of
their transactions. The decision would therefore be completely wrong
B.
Financial intermediation is the role which financial institutions play when they act
as middlemen to collect funds from surplus units and make these funds available
to deficit units.
C.
Financial intermediation plays a critical role in the economic development of a
country because in their absence it would be very expensive and sometimes
impossible for those with funds to identify those who need funds. Even where the
parties are able to identify one another, the element of default risk would also be
critical as these parties do not know each other that well. Financial intermediation
therefore makes it possible that funds are available at relatively cheaper cost
than would have been otherwise.
QUESTION 2
a. State at least one advantage which a person can benefit when he holds money
with each of the following motives in mind:
i.
Transactional motive
2 marks
ii. Precautionary motive
2 marks
iii. Speculative motive
2 marks
b. Technical defects on a cheque refer to anomalies that can render a cheque unfit
to be paid by a banker. With that understanding in mind, state the specific things
that a banker looks for when scrutinizing a cheque for technical defects in
relation to the following:
i.
Date
3 marks
2
ii. payee
2 marks
iii. Signature(s)
2 marks
iv. Amount in words and figures
2 marks
TOTAL MARKS 15
ANSWERS TO QUESTION 2
Transaction motive – provides liquidity to the holder of money to meet immediate needs,
Precautionary motive – protects one against future eventualities ie a fall back position
in an emergency.
Speculative motive – may gain when market fundamentals move in favour of the
speculator.
Important considerations on a cheque
Date
- date must be current,
-
future dates i.e. post dated are not accepted,
-
due dates such as those over 6 months are also not acceptable, stale
Payee
- the name of the presenter of the cheque must correspond to the one
of the customer making the deposit
Signatures
- the signature must correspond to those the signature in the banks
mandates
Amount in words and figures – the amount in words and figures must agree.
QUESTION 3
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a. What is the difference between a primary market and a secondary market?
2 marks
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b. Mention the three major sources of revenue for banks and give an example of
the type of activities which banks undertake in order to raise such revenues
6 marks
c. Define monetary policy
2 marks
d. Describe how the Reserve Bank of Malawi can use ‘the discount rate’ as a
monetary policy tool to fight inflation.
5 marks
TOTAL MARKS 15
ANSWERS TO QUESTION 3
Primary market is used for raising new capital while secondary market is for investors
who are disinvesting and those who are investing in existing stocks or shares.
The three major sources of revenue
i.
interest on loans and overdrafts
ii. revenue from fees and charges for the various services
iii. return on investments and securities – shares
Monetary policy refers to the measures which the authorities take to ensure that proper
functioning of the financial system of a country’s economy.
The Central bank uses the discount rate by changing it upwards or downwards
whenever it desires to either reduce or increase money supply. The Discount rate is the
cost of borrowing which commercial banks are charged when they borrow from the
central bank.
Where there is inflation and the authorities want to reduce the appetite for borrowing,
interest rates will be increased. on the other hand, where there is deflation and the
authorities want to stimulate economic activities, interest rates will be lowered.
QUESTION 4
a. In the service industry, it is the order of the day to be faced with customer
complaints.
Give five steps you would follow when dealing with a customer who has
presented a complaint to the bank
5 marks
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b. Caring is an important aspect among the three ‘Cs’ in internal customer service.
Mention the objectives of internal customer care in an organization care and
explain why you think it is important
10 marks
TOTAL MARKS 15
ANSWERS TO QUESTION 4
What to do when a customer has a complaint
i.
listen – show interest and empathy
ii.
apologize – even if the customer may be wrong because often he
perceives that he has been treated unjustly
iii.
take notes of what the customer is saying so that you don’t miss any
important points
iv.
restate what customer has said to establish or confirm that you got
everything correctly
v.
where applicable, ask for your customers suggestions
vi.
propose various alternatives
vii.
get the customers agreement that the proposed solution will meet their
expectations
Objectives of internal customer care
i.
Increasing the level of service to the customer – coordination will help to increase
productivity
ii. enhance the effectiveness of the organizations efficiency – because each person
is concentrating on his area of competency realizing that colleagues will also
do their part correctly, efficiency will improve
iii. improve internal communication
iv. Create job satisfaction
v. reducing complaints and problems.
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SECTION B
QUESTION 5
Give at least five functions of a central bank and give a detailed explanation of what is
involved in the said functions.
20 marks
ANSWERS TO QUESTION 5
i.
Banker to commercial banks
ii. issuer of legal tender
iii. banker and advisor to government
iv. Debt Management
v. Managing external value of local currency – managing the exchange rate
vi. management of the bank rate
vii. imposing liquidity measures such as the liquidity reserve requirement
viii. managing payment systems in a country
QUESTION 6
Money laundering poses as a big threat both to developed and developing countries
such that banks all over the world are now networking heavily through information
sharing to update each other on how this evil can be combated.
What are some of the indicators of possible money laundering
16 marks
Mention the circumstances in which a banker would be guilty of committing a money
laundering offence by way of not fully satisfying the requirements of Know-YourCustomer (KYC) when handling customer transactions
4 marks
TOTAL MARKS 20
ANSWERS TO QUESTION 6
Possible indicators of money laundering include the following
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i.
Newly opened accounts receiving large deposits which are not in line with the
nature of business
ii. large transfers/deposits into an account followed by immediate withdrawals
iii. Several transactions involving amounts of round amounts
iv. Issuance of several cheques drawn and paid on the same day
v. Exchange of large quantities of low denomination notes for higher value notes
vi. large cash payments instead of cheques
vii. large deposits or withdrawals from dormant accounts
viii. unexpected pay off of a problem loan.
A banker would be charged with an offence of promoting money laundering if no proper
KYC is conducted in the following situations
i.
when entering into a continuing business relationship or conducting a transaction
without fully identifying the client and knowing what he does.
ii. carrying out electronic transfers
iii. Where there is a suspicion of a money laundering offence and the bank casts a
blind eye
iv. The bank has doubts about the veracity or adequacy of the customers
identification or verification but still proceeds to carry out transactions on
behalf of the customer.
QUESTION 7
The bank has just recruited new employees straight from college and would like to
deploy them in the banking halls of its branches as customer care consultants. One of
the recruits has approached you for guidance on the key points to bear in mind is order
to give good customer service.
a. Outline any five points which the consultant must remember as hints for good
customer service.
10 marks
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b. Give at least five attributes that people look for in an individual to determine if he
has a positive attitude or not.
10 marks
TOTAL MARKS 20
ANSWERS TO QUESTION 7
Hints for good customer service
i.
Show interest in the customer and maintain a pleasant smile
ii. cheerfully greet customer by name if possible
iii. develop a habit of listening attentively
iv. look at the customer while talking
v. never attempt to handle transactions you do not know
vi. Be alert for any indication of displeasure from a customer
vii. never say no without an explanation
Signs of positive attitude include the following
i.
belief in self, have self esteem
ii. willingness to see the best in others
iii. ability to see opportunity everywhere
iv. focus on solutions
v. Desire to give
vi. Success never comes easily, be persistent
vii. accept responsibility
QUESTION 8
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Money needs to possess certain attributes in order for it to effectively fulfill its key
function as a medium of exchange.
Explain in detail at least five characteristics of money which you covered during the
course and demonstrate your understanding of each characteristic by giving an
example.
20 Marks
TOTAL MARKS 20
ANSWERS TO QUESTION 8
i.
Acceptability –money must be universally acceptable in order for it to fully satisfy
the role of a medium of exchange
ii. Divisibility – unlike old forms of money like cows, money should be divisible into
smaller units
iii. Homogeneity – uniformity is key for money to possess each value
iv. Indestructibility – money material ought to be durable
v. portability – money material must possess large value compared to the weight
and size
vi. cognizable – money must possess unique qualities and characteristics
vii. stability in value – money must possess stability of value and this value must be
maintained over time.
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