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INSTITUTE OF BANKERS IN MALAWIDIPLOMA IN BANKING EXAMINATIONSUBJECT: TREASURY MANAGEMENT 1 (IOBM – D201)Date: Monday, 29th April 2013Time Allocated: 3 hours (13:30 – 16:30 hours) INSTRUCTIONS TO CANDIDATES1 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.4You 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.5Begin each answer on a new page.6Please write your examination number on each answer book used. Answer sheets without examination numbers will not be marked.7DO NOT open this question paper until instructed to do so.SECTION A(60 MARKS)Answer ALL questions from this section.QUESTION 1Discuss the four segments of the financial system as defined by the Reserve Bank of Malawi (12 marks)Explain what you understand by the terms direct and indirect claims (securities)? (3 marks) (Total 15 marks)QUESTION 2You have been tasked to draft a robust Counterparty Trading policy document that will ensure that your bank is well managed to survive the challenges of today and the future as well as maximize reward to the shareholders. Write a memo to the Managing Director, copy the Head of Operations, discussing:Why policies are important in a typical treasury environment? (5 marks)Discussing five critical principles to be considered when drafting a policy like Counterparty Trading policy. (10 marks) (Total 15 marks)QUESTION 3Distinguish between transaction and translation risks. (4 marks)Outline four likely risks, not financial in nature, which you may encounter in a typical banking environment. (8 marks)Indicate the three common measures that you would recommend to manage and reduce credit risk. (3 marks) (Total 15 marks) QUESTION 4You visited Springboks Commercial Bank treasury dealing room and notice the following data scrolling through their giant dealing screens:Springbok dealers will always square trading positions by close of business day every day.Opening position (millions) Rate on revaluationUSDGBPZAREURCADMWKJPYZARCADEURGBPUSDD..3.00.101.501.00.151.065.035.75354.0457501.3355.01… RequiredWhat do you understand by the term to square trading position? (2 marks) Why is it important to square positions? (2 marks)Calculate the dealers overall position. (6 marks)Describe what you understand by the term dealing code of ethics, and explain its importance to the market. (5 marks) (Total 20 marks)SECTION B (40 MARKS)Answer ANY TWO from this sectionQUESTION 5Discuss the causes of scarcity of foreign exchange in the country, and recommend plausible solution to end the problem. (Total 20 marks)QUESTION 6There is an essay writing competition on Basel II in which the winner’s article will appear in the Bloomberg Magazine. Prepare your article discussing the following:Define the Basel Committee on bank supervision. (4 marks) Why the strict bank supervision is a necessary evil nonetheless. (8 marks) What is likely to happen when a bank fails. (8 marks) (Total 20 marks)QUESTION 7Below are the balance sheet extracts for two banks available on IOB website: Lisa Investment BankBernie BankInterest earning assets150.0135.5Interest bearing liabilities135.0150.0Capital account201.3239.9You are also given that the banks are enjoying 16% on assets, and the average interest paid on liabilities is 12%;Required:Compile the gap for each bank. (4 marks)Calculate the net income margin for the two banks. (6 marks)Calculate and explain the impact on both banks of a rise in interest rates by 1% across the board. (10 marks) (Total 20 marks)QUESTION 8‘Now this is very interesting’ the CEO told Chimwemwe, the bank’s Treasury Officer. ‘This is what happens when Central Banks take bank survival seriously, he said. Since I started banking some 20 years ago, the regulator has been making commendable input to overall bank management: some five year ago, they imposed the hiring of a back office team, three years later they recommended the recruitment of an Internal Auditor and middle officer, and just last year the Bank Supervision of the Reserve Bank told me to hire a Risk Manager. Now the same have faxed me, saying I need a compliance unit.‘This is duplication of work, Sir’ Chimwemwe chipped in. You are the Chief Risk Officer, and you have been asked to write a memo, copy Chimwemwe, justifying that there is no duplication between Risk Management and Compliance Units of the bank by clearly discussing their respective responsibilities (Total 20 marks)END OF THE EXAMINATION PAPER ................
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