Date: Sunday, 28 th April 2013
Time Allocated: 3 hours (08:00
– 11:00 am)
7
5
6
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.
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.
Begin each answer on a new page.
Please write your examination number on each answer book used. Answer sheets without examination numbers will not be marked.
DO NOT open this question paper until instructed to do so.

Answer ALL questions in this section
QUESTION 1
Explain the following concepts:
(a) Bretton Wood Systems
(b) Highly Indebted Poor Initiative (HIPC)
(5 marks)
(5 marks)
(c) Capital Flight (5 marks)
QUESTION 2
(a) Explain the difference between the IMF and the World Bank.
(Total 15 marks)
(3 marks)
(b) Explain four ways through the International Monetary Fund (IMF) supports its member countries . (12 marks)
(Total 15 marks)
QUESTION 3
(a) Define the term Balance of Payment (BOP).
(b) List three causes of BOP imbalances.
(2 marks)
(3 marks)
(c) Explain the difference between a current account and a capital account. (10 marks)
(Total 15 marks)
QUESTION 4
Distinguish the following terms:
(a) Adjustable peg and fixed exchange rate.
(b) Monetary Base and Liquidity Reserve Requirement.
(c) Cost push inflation and Demand push inflation.
(5 marks)
(5 marks)
(5 marks)
(Total 15 marks)
A qualification examined by the Institute of Bankers in Malawi 2

Answer ANY TWO questions from this section
QUESTION 5
(a) Mention two reasons why measurement of national income is important. (4 marks)
(b) Explain three problems associated with measuring and interpreting Gross Domestic
Product. (6 marks)
(c) Use the information in the table below to compute real GDP for the year 2010.
(10 marks) Assume the base year is 2005.
Year 2005 Year 2010
Product Quantity
‘000 Kgs
Tobacco
Tea
80
90
Price
(MK’000)
40
11
Cotton
Sugar
15
50
QUESTION 6
(a) Define the term financial liberalization.
90
25
Quantity
‘000 Kgs
100
80
20
30
(b) Briefly explain three examples of financial liberalization policies.
Price
(MK’000)
50
10
100
50
(Total 20 marks)
(2 marks)
(6 marks)
(c) Recently, most banks in Malawi experienced serious liquidity problems.
Required:
(i) State three features of a liquid asset. (3 marks)
(ii) Explain three ways through which banks managed to improve their liquidity positions.
(9 marks)
(Total 20 marks)
A qualification examined by the Institute of Bankers in Malawi 3

QUESTION 7
You are given the following demand and supply of the Malawi Kwacha in the foreign exchange markets:
Demand: 30,000-8,000e
Supply: 25,000-12,000e
Where ‘e’ is the nominal exchange rate expressed as US Dollars per Malawi Kwacha.
Required:
(a) Find the fundamental value of the Malawi Kwacha. (6 marks)
(b) If the exchange rate is USD 0.3 = MK1; explain whether the Kwacha is over-valued or under-valued? (4 marks)
(c) Graphically present your findings in (ii) above. (6 marks)
(d) What is the balance of payments (BOP) surplus or deficit? (4 marks)
(Total 20 marks)
QUESTION 8
(a) Explain how the following factors affect the demand and supply of foreign currency:
(i) Inflation
(ii) Interest rates
(4 marks)
(4 marks)
(b) Recently, the Reserve Bank of Malawi devalued the exchanged rate and at the same time floated it.
Required:
(i) Define the terms floatation and devaluation. (4 marks)
(ii) Explain two ways through which devaluation of the exchange rate was expected to improve the country’s foreign exchange position. (8 marks)
(Total 20 marks)
A qualification examined by the Institute of Bankers in Malawi 4