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CONFIDENTIAL BM/OCT 2007/FIN536

UNIVERSITI TEKNOLOGI MARA


FINAL EXAMINATION

COURSE : FINANCIAL MARKETS AND INSTITUTIONS


COURSE CODE : FIN536
EXAMINATION : OCTOBER 2007
TIME : 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of seven (7) questions.

2. Answer five (5) questions only in the Answer Booklet. Start each answer on a new page.

3. Do not bring any material into the examination room unless permission is given by the
invigilator.

4. Please check to make sure that this examination pack consists of:

i) the Question Paper


ii) an Answer Booklet - provided by the Faculty

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO


This examination paper consists of 4 printed pages
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 2 BM/OCT 2007/FIN536

QUESTION 1

a) Analyze the difference between a capital market and a money market of the
Malaysian financial system.
(12 marks)

b) If loan is the largest component of assets of a commercial bank, what item


contributes the most on the liability side and how would a commercial bank maintain
the level of this component?
(8 marks)

QUESTION 2

a) Labuan International Offshore Financial centre was established in 1990 as part of the
long-term plan to enhance the attractiveness of Malaysia as a financial centre.
Elaborate four (4) types of business activities that received preferential tax treatment
from the Malaysian Government.
(10 marks)

b) Briefly describe the role played by Securities Commission in governing the capital
market in this country.

(10 marks)

QUESTION 3

a) Bank A is experiencing an increase in the non-performing loan (NPL) to gross loan


ratio for two consecutive years probably due to lack of thorough evaluation of credit
application. Bank B, on other hand, has not been able to borrow from other banks to
meet its short term requirement since it has exceeded its credit limit.

Identify the type of risk Bank A and Bank B are facing and how can the banks
reduce those risks.

(10 marks)

b) Discuss one product each under the following commercial banking product line:

i) Deposit
ii) Trade finance
iii) Electronic banking
(10 marks)

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL


CONFIDENTIAL 3 BM/OCT 2007/FIN536

QUESTION 4

a) Differentiate between 'Direct Borrowing and Lending' and 'Open Market Operations'
as monetary instruments to meet the monetary policy objectives of Bank Negara
Malaysia.
(10 marks)

b) Explain the importance of managing reserves in relation to the issuing of currencies


by Bank Negara Malaysia.
(10 marks)

QUESTION 5

a) The stability of the foreign exchange market is important for exporters and importers.

i) List and explain the factors affecting foreign exchange rates.


(6 marks)

ii) Explain briefly one main role of Bank Negara Malaysia in the foreign
exchange market.
(4 marks)

b) Banks may trade in foreign exchange for speculative purpose or for commercial
requirement. Which is riskier between the two? Why?
(6 marks)

c) A Malaysian exporter who produced his invoice in USD currency would prefer a weak
or strong ringgit against the US dollar? Why?
(4 marks)

QUESTION 6

a) Which is riskier, a government bond or the private debt securities? Explain.


(7 marks)

b) Why must a corporate bond be evaluated by a third party institution known as the
rating agency?
(8 marks)

c) Futures and options are part of the derivatives market products. Differentiate
between a call option and a put option.
(5 marks)

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL


CONFIDENTIAL BM/OCT 2007/FIN536

QUESTION 7

a) The following are indicators of a bank's performance under the CAMELS framework:
fc*S*
1?

Risk-weighted capital ratio 8.5 10 12 15


Gross NPLs to gross loans 8 12 13 16 5.5
and advances
Administrative expenses to 15 17 18 20 13
total expenditures
Net interest margin 3.8 3.3 2.7 2.6 4.0

i) Analyze the bank's performance based on the above capital adequacy, asset
quality, management soundness and profitability trend.
(8 marks)

ii) Explain the probable reasons for such a performance.


(8 marks)

b) What does a 'spread' indicate to a commercial bank?


(4 marks)

END OF QUESTION PAPER

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL