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(a) Discuss in detail the roles played by financial institutions (FIs) in the economy with particular reference to Zambia citing particular examples of financial institutions that you are familiar with in Zambia.
(b)List and explain the major risks that financial institutions in general face? How do these risks manifest or affect the FIs?
(a)Explain the five (5) main solutions to the challenges of the barter system.
(b)Briefly explain the difference between an asset and a liability on a bank’s balance sheet. How does net worth relate to each? Why must a balance sheet always balance?
(c)List and briefly explain the major assets and claims on a commercial bank’s balance sheet.
Mr. Ahmed retired as president of the Master Tile Company but is currently on consulting contract for Rs. 450,000 per year for next 10 years. a. If Mr. Ahmed’s opportunity cost is 10 percent, what is the present value of his consulting contract? b. Assuming that Mr. Ahmed will not retire for two more years and will not start to receive his 10 payments until the end of third year, what would be the value of his deferred annuity?
Angro Foods had Rs. 450,000 of retained earnings on December 31st 2020.The company paid common dividend of Rs. 25,000 in 2020 and the had retained earning balance on December 31st 2019 of Rs. 400,000. Calculate Net income, EPS and Dividend per share for 2020. Outstanding common shares are 20,000 shares.
QUESTION ONE
Explain the factors determine money demand in Fisher’s quantity theory and how each affect money demand? What determines velocity in Fisher’s theory? What effect do interest rates have on velocity?
Identify the following with a sentence or at most two and give an example in each one (I)Multiplier
(ii)Monetary aggregate
(iii)Money illusion
(iv)Dollarization
(v)Devaluation
QUESTION TWO
(a)Suppose that the price level in Zambia is measured at 14% and is expected to rise by 3% over the next six months.
(b)Explain the costs associated with this expected inflation.
(c)Explain the other costs that Zambia will face if the inflation unexpectedly turns out to be 30%.
(d)Explain of the role of the banking system in the effective implementation of monetary policy.
(e)Explain the difference between reserve requirements and capital requirements for banks, and what differing purposes do they reflect.
QUESTION THREE
(a)Explain the five (5) main solutions to the challenges of the barter system.
(b)Briefly explain the difference between an asset and a liability on a bank’s balance sheet. How does net worth relate to each? Why must a balance sheet always balance?
(c)List and briefly explain the major assets and claims on a commercial bank’s balance sheet.
QUESTION FOUR
(a)In September 2020, The Bank of Zambia announced a slight reduction in the statutory reserve ratio assuming from 10% to 9%. Explain how this kind of reduction in the statutory reserve ratio would affect the:
Size of the money multiplier,
(b)Amount of excess reserves in the banking system, and
Extent to which the system could expand the money supply through the creation of checkable deposits via loans?
(c)Demonstrate your understanding of the terms below by way of a brief explanation of each;
(I)Seigniorage
(ii)Nominal Anchor for Monetary policy
(iii)Monetary policy rate
(ivCost push inflation
(v)Monetary system
QUESTION FIVE
The growth of the financial sector as triggered by the structural adjustment programs implemented in the early 1990s has opened up significant opportunities for the private sector. Through various liberalisation policies there has been a proliferation of financial institutions, both depository and non-depository.
The Zambian financial markets landscape has also registered numerous financial institutions aimed at enhancing their intermediary roles and innovations. These innovations have most undoubtedly been as a consequence of the desire by financial institutions to grow and increase their market share sustainably.
In 1993, the collaborative efforts of the International Finance Corporation (IFC) and the World Bank led to establishment of the Lusaka Securities Exchange Plc. (LuSE).
LuSE opened its doors for business on 21st February 1994. It was also motivated by the need to deepen awareness and understanding of financial and capital markets in support of the emerging private sector. And this had contributed significantly to the country’s economic activities hence a stable GDP growth (World Bank, 2013).
On the debt market front, the Zambian government is also mindful of the need to maintain debt sustainability to safeguard macroeconomic stability. Total debt as a percentage of GDP stood at 59% in 2018. There have been concerns as to the Government’s fiscal management on its high debt obligations with its debut US $750 million Eurobond falling due for repayment in 2022. This repayment comes amid heightened repayments risks, downgraded credit rating and the unmeasured effects of global health pandemic (COVID-19).
Required:
(a)Briefly explain the terms highlighted in bold from the passage above.
(b)Describe and explain the five (5) roles played by the Lusaka Securities Exchange (LuSE).
(c)What would be your recommendations to help manage Zambia’s debt and ensure she does not default come 2022?
QUESTION ONE
(a) Discuss in detail the roles played by financial institutions (FIs) in the economy with particular reference to Zambia citing particular examples of financial institutions that you are familiar with in Zambia.
(b)List and explain the major risks that financial institutions in general face? How do these risks manifest or affect the FIs?
QUESTION TWO
(I) Using appropriate illustrations discuss in detail the factors that affect demand for loanable funds according to the Loanable Funds Theory of interest rate determination.
(ii) What impact would these have on demand and supply of funds and on the interest rate?
QUESTION THREE
(a) Discuss the term Monetary Policy in relation to the Zambian economy.
(b) Zambia as a developing country may have problems in establishing an effective operating Monetary Policy.
(I) Explain at least five major problems which may prevent Zambia from establishing an effective Monetary Policy.
(ii)Describe the main Monetary Policy tools which Zambia may use to influence economic growth.
QUESTION FOUR
(a)What is risk management? Discuss the two major ways in which exposure can be managed and/or reduced.
(b)Financial institutions face a number of risks in their operations. How are these risks mitigated or managed? What techniques are used to mitigate each type of risk you have identified?
You want to increase your position in XYZ Inc. The current share price is $10. You need a margin deposit of 20% to open the position. If you put down $1000 to open the trade, how many shares do you have exposure to?
. A firm currently sells $500,000 annually with 3% bad debt losses. Two alternative policies are available. Policy A would increase sales by $300,000, but bad debt losses on additional sales would be 8%. Policy B would increase sales by an additional $120,000 over Policy A and bad debt losses on the additional $120,000 of sales would be 15%. The average collection period will remain at 60 days (6 turns per year) no matter the policy decision made. The profit margin will be 20% of sales and no other expenses will increase. Assume an opportunity cost of 20%
In Virtual Reality, time travel became possible only in 3002. Economists in the Statistics Bureau decided to conduct a Consumer Expenditure Survey in both 3001 and 3002 to check the substitution bias of the CPI.
(a) All investments offer a balance between risk and potential return. The bond market is no exception to this rule.
(i) Discuss reasons why bonds are considered less risky than stocks.
(ii) Explain determining factors which make bonds a high yielding and perfect choice for investors.
(b) Describe the risks associated with investing in government and corporate bonds.
Explain the term ‘beta of a stock measure’?
