ESP3 – PRACTICE TEST

TAN 434 (BANKING & FINANCE)

Time allowed: 50 minutes

PART I (3mks): Answer briefly the following questions

1. What are the benefits of Financial Statements?
2. What are the pros and cons of exchange-traded derivatives?
3. What are the differences between LBO and MBO?
PART II (3mks)
Fill in each numbered gap with an appropriate word to complete the following
paragraphs. The first letter of the word was given (03 mks).
Bank of England Governor Andrew Bailey said Wednesday that the bank was “justified” in
its decision to raise (1) i………….. r…………… by a surprise 50 basis points last week.
The move defied market expectations of a 25 basis point hike and reignited debate among
critics who say that the (2) c………….. b…………… has failed to act quickly and
decisively enough to tackle rising costs. Bailey said he accepted the criticism, but insisted
that the (3) M………….. P…………… C………….. remains committed to its task: to
return inflation to 2%.
“We had to make really quite a strong move at that point. It was justified,” Bailey told
CNBC’s Sara Eisen at the European Central Bank’s annual conference in Sintra, Portugal.
“I can understand why there are critics of us and central banks,” he added.
“We have a job to do. Our job is to return (4) i………….. to target and we will do what is
necessary. I understand the concerns that go with that, but I’m afraid I always say that it is a
worse outcome if we don’t get inflation back to target.”
Fresh data last week showed annual U.K. consumer (5) p………….. inflation was 8.7% in
May, exceeding expectations and adding to pressure on the bank, which has struggled to (6)
b………….. d………….. inflation at the same pace as some international peers.
Critically, core inflation — which excludes volatile energy, food, alcohol and tobacco prices
— was 7.1% year on year in May, up from 6.8% in April and marking its highest rate since
March 1992.

1
PART III (4mks)
Write an essay in no more than 300 words on one of the following topics.
1. Discuss the impact of technology on banking services.
2. If there is a decline in interests, which would you rather be holding, long-term
bonds or short-term bonds? Why? Which type of bonds has the greater interest
rate risk?
Give reasons for your answer and include any relevant examples from your own knowledge
and experience.

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