MURANG’A UNIVERSITY OF TECHNOLOGY

SCHOOL OF BUSINESS AND ECONOMICS

DEPARTMENT OF COMMERCE

UNIVERSITY ORDINARY EXAMINATION

2020/2021 ACADEMIC YEAR

SECOND YEAR FIRST SEMESTER EXAMINATION FOR, BSc. MATHEMATICS
AND ECONOMICS

BCE 200 – ECONOMICS OF MONEY AND BANKING

DURATION: 2 HOURS

Instructions to candidates:

1. Answer question One and Any Other Two questions.

2. Mobile phones are not allowed in the examination room.
3. You are not allowed to write on this examination question paper.
 SECTION A: ANSWER ALL QUESTIONS IN THIS SECTION

QUESTION ONE (30 MARKS)

a) Why is interest rate paid? Discuss the four theories which relate to these concepts (8 marks)
b) Given that;

1 USD = AuD 0.6000 – 0.6015

1 USD = M X N 0.0933 – 0.9350

i. Compute M X N/ AuD bid (5 marks)

ii. Compute M X N/ UD after (5 marks)
c) What do you mean by monetary system (2 marks)
d) Discuss the various kinds of the gold standard system (6 marks)
e) State four social evils of money (4 marks)

SECTION B – ANSWER ANY TWO QUESTIONS IN THIS SECTION

QUESTION TWO (20 MARKS)

a) Imagine that you are president of a large bank the central bank requires that you hold 10 % of your
deposits in reserves. There, if someone deposits $100, the bank will keep some as reserves and lend
out the rest which will then increase the supply f money in the economy. Other banks will receive
the money and the process of lending out deposits can start again and continue. Show the ten stages
process to be followed (14 marks)
b) The are two ways of analysing the credit creation process discuss using examples
i. Credit creation by a single bank (3 marks)
ii. Credit creation by the banking system as a whole (3 marks)

QUESTION THREE (20 MARKS)

a) Discuss FIVE market participants in the foreign exchange market (10 marks)
b) Evolution of the international monetary system can be analysed in four stages, briefly describe each
stage (10 marks)

QUESTION FOUR (20 MARKS)

a) Monetary policy plays a more limited role in developing countries. Discuss FIVE reasons why
(10 marks)
b) Explain the elements of constituents of money supply in Kenya (10 marks)