Financial Institutions And Markets Question Paper
Financial Institutions And Markets
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2010
UNIVERSITY EXAMINATIONS: 2010/2011
THIRD YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CFM 309: FINANCIAL INSTITUTIONS AND MARKETS (SATURDAY)
DATE: DECEMBER 2010 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
a. A financial institution is a financial intermediary (FI’S) that facilitates the transfer of funds
between suppliers and users of funds. Briefly explain the benefits that FI’s provide to the suppliers
of funds (6 marks)
b. Identify at least three types of risks incurred by financial institutions and using illustrations, explain
the extent to which the risks affect the operations of financial institutions in Kenya. (9 marks)
c. In the recent past, Kenya has witnessed growth in both the number and the scope of financial
institutions. Explain the causes of this trend. (10 marks)
d. Identify four reasons that have led to the increase in loan sales in Kenya. How are Kenyan banks
managing any risks arising from the growth in sales? (5 marks)
QUESTION TWO
a. Money markets are used to trade debt securities and instruments with maturities of less than one
year. Identify three characteristics of the money market. (6 marks)
b. Explain four reasons for the popularity of bonds as a source of long term funds in Kenya. (4 marks)
2
c. The mandate of CMA is outlined in the CMA Act Cap. 485 A. Evaluate the effectiveness of CMA
in carrying out four of its objectives. (10 marks)
QUESTION THREE
a. Discuss factors affecting the demand and supply of loanable funds. (10 marks)
b. Using illustrations, explain three factors that affect nominal interest rates in Kenya. (10 marks)
QUESTION FOUR
a. Discuss the role of the budget in the economy (8 marks)
b. Identify four objectives of monetary policy in Kenya (2 marks)
c. Outline four limitations of monetary policy in Kenya (2 marks)
d. The Central Depository System (CDS) enables the transfer of securities without the need for
physical movement of securities. Identify the stakeholders of CDS and their respective roles. What
are the advantages of adopting the CDS? (8 marks)
QUESTION FIVE
a. Identify four instruments of monetary policy used by the Central Bank of Kenya and their
effectiveness in achieving monetary policy objectives (10 marks)
b. The performance of the Nairobi Stock Exchange is measured through the NSE 20 share index.
Identify four difficulties encountered in the construction of the 20 share index and their possible
solutions. (10 marks)
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