University of Sialkot, Pakistan

Final Term Examination- Spring-2021

Course Code: COMM-2008 Course Title: Money, Banking & Finance
Total Time: 150 Minutes Total Marks: 40 Marks
Department: Commerce Program: ADP/BS(A&F)
Date & Time: 8/7/2021(10:00-1:30)
Instructor Name: Iram Rahmat Instructor Sign:
Student’s Name: Roll No.:
Subjective Section

Question 1: (10 Marks)

Follow the impact of a Rs. 20,000 cash deposit through the entire banking system, assuming
that the reserve requirement is 10 percent and that banks have no desire to hold excess
reserves.

Question 2: (10 marks)

Define bank risks and what are the measures taken by banks to control:
 Liquidity Risk
 Credit Risk
 Interest Rate Risk
 Trading Risk
 Foreign exchange Risk
 Sovereign risk

Question 3: Answer the following questions (20 Marks)

I. Show the effect of following transactions on balance sheet of central and commercial bank.
a. Central bank purchases securities of Rs. 100,000 from MCB.
b. A commercial bank borrows Rs.30,000 from the State Bank.
c. The amount of cash in the vaults of commercial banks falls by Rs.85,000 due to
withdrawals by the public.

II. You applied for loan in HBL. As a bank is a dealer in money. What steps bank will take to
approve your loan appliaction. Explain it with respect to credit risk and credit rating.

III. Consider the balance sheets of Bank A and Bank B. If reserve requirements were 10
percent of transaction deposits and both banks had equal access to the interbank market and
funds from the Federal Reserve, which bank do you think faces the greatest liquidity risk?
Explain your answer.

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Bank A
(in millions)
Assets Liabilities
Reserves $50 Transaction Deposits $200
Loans $920 Nontransaction Deposits $600
Securities $250 Borrowings $100
Bank B
(in millions)
Assets Liabilities
Reserves $30 Transaction Deposits $200
Loans $920 Nontransaction Deposits $600

IV. Suppose you want to start a new business. You have 60% cash and you go to the bank for
the remaining amount. Bank provides you the capital. At the time of contract, profit sharing
ratio was not decided by both the parties. At the time of profit, you didn’t disclose the amount
of profit with bank and the bank sues you. In which category this contract falls according to
the modes of financing and is the contract valid ?

V. What factors should you take into account when considering using the following assets as
stores of value?
a. Gold
b. Property
c. Stocks
d. Government bonds

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