ASSIGNMENT 3

APRIL 2007
QUESTION 1
a) One of the justification for the acquisition of
finance companies by commercial bank is to create
a ‘one stop centre’ banking business. Explain the
concept of a ‘one-stop centre’ banking business.
Answer:
A one-stop centre for banking business refer to one location for wide range of financial services

b) Discuss the functions of any two non –bank Financial Institution as

financial intermediaries in a financial system.
Answer:

QUESTION 2
a) Explain the function of Bank Negara Malaysia as
financial advisor to the government and a banker
to government and other banking institutions
Answer:

b) What is a base lending rate (BLR)? Under the

current interest rate framework who sets the BLR
and why.
Answer:
BLR or base lending rate is minimum interest rate calculated by financial institution
base on formula that takes into account administrative cost and institution’s cost of
fund. Before 2004, BLR are determining by BNM then this rate is must to other
commercial bank and financial institution. On July 2004 BNM introduced new
interest rate framework which allowed each banking institution to announce its own
BLR based on its cost structure and business strategy.
The reason for introducing these new frameworks as follow:
1. To promote more efficient pricing by banking institution.
2. For the favorable of economic and financial environment.
 3. For the macroeconomic objective. To ensure banking institution more
competitive, attractive to customer, increase spending and stimulate
economic growth.

a) A surplus unit in financial system would prefer a

lower or higher interest rate? Explain
Answer:

QUESTION 3
a) If a company has excess fund, they can go to
commercial banks to place these funds to maximize
returns. Discuss any three products that banks can
offer to the surplus units.
Answer:
Let take Maybank as an example. Currently Maybank providing 2 classes/ category
of product that give return to excess surplus unit through account/banking product
and investment product. The most common product as follow:

1. Fixed Deposit
Fixed deposits is like we loan the bank with our excess fund for the
determined period of time and for the specific interest rate as a return. Fixed
Deposit carry higher interest rate compared to saving account. The term for
deposit will range from 1 month to 60 month and the rate of interest is differ
according to the term of deposit. Normally, longer period of the deposit
relatively come with higher interest rate. Monies will remain in the account
and cannot be withdrawn before the agreed term. In some circumstances,
this could lead to disadvantages to the depositor. When the depositor facing
problem or need money for emergency purpose, they will be penalties for
drawing the monies before the maturit. Maybank providing two types of fixed
deposits; conventional and Islamic fixed deposit.

2. Unit Trust
 Unit trust is an investment in diversified portfolio managed by fund manager
using pool of fund from collective investor. Unit trust can be classified as
highly risk, moderate and low risk. And addition, fund manager also
categorized the unit trust to match investor objective such as growth fund,
aggressive fund, equity fund, income fund and etc. this type of fund is make
up to cater investor need through specific formulation of portfolio. For
example, an investor with excess of money and decide for investment in unit
trust with expected capital gain should go for growth fund. While the banking
institution which provide such type of fund, used the investor money to invest
in growth type equity and mix with other long term bond to secure the
investment. Recently, some banking institution also provide unit trust fund
that are classified their unit trust product into region such as Asian equity
fund, China equity fund and Emerging Asia Fund.

3. Saving Account
Saving account is common product of banking institution. This is where
surplus unit can place their excess of fund and earn interest as a return.
Saving account provide their account holder unlimited access to the money
deposited and can be withdrawn anytime. However saving account relatively
provide smaller interest rate as return to depositor compared to fixed deposit
and unit trust.

a) A customer sells a banker Acceptance (BA) to a

bank for RM1 million at 7% for a period of 90 days.
How much would the customer’s account be
credited? At maturity what amount is paid back to
the bank by this customer? Calculate the profits
made by the bak from this transaction.
Answer:

b) A Malaysian manufacturer is exporting its product

to a party in Japan. In foreign exchange
transaction, would this exporter buy or sell
Japanese yen to the bank? Explain briefly.
 Answer:

QUESTION 4
a) According to the Banking and Financial Institution
Act 1989, a bank means a person which carries on
banking business. What does a ‘ bangking business
means?

Answer
“banking and finance company” means a person holding both a licence Act A1211.
to carry on a banking business and a licence to carry on a finance
company business, granted under section 6(4);
“banking business” means—
(a) the business of—
(i) receiving deposits on current account,
deposit account, savings account or
other similar account;
(ii) paying or collecting cheques drawn by
or paid in by customers; and
(iii) provision of finance; or
(b) such other business as the Bank, with
the approval of the Minister, may
prescribe;

b) List and explain any two sources of fund and any

two uses of fund of commercial banking.
Answer:

QUESTION 5
a) What is Internet banking? Do you prefer to do
banking business through internet banking or
prefer to go to the bank’s premise and deal direct
with the bank’s personnel? Explain

Answer:

b) In your opinion, should the issuance of credit card

by banks be controlled? Discuss in term of how it
 can affect the banks performance and the financial
condition of an individual.
Answer:

QUESTION 6
a) The following are selected data from financial
statements of a commercial bank:
RM
Loans, advances and 25,500,
financing 000
Total Asset 36,500,
000
Interest Income 2,500,0
00
Interest Expenses 950,000
Deposits From Customer 22,750,
000
Shareholder’s fund 3,750,0
00
Net Profit for The Year 1,050,0
00
Calculate as many ratios from the above data to
measure the bank’s performance and classify the
ratios into the categories of profitability and
liquidity.

Answer:

b) Asset quality is one of the important aspects that

nedd to be looked into in evaluating bank
performance. Discuss how an asset quality is
related to non performing loan (NPL).

Answer:
QUESTION 7
a) Explain the importance of having adequate capital
among financial institutions

Answer:

b) A financial institution is consistently having

problem in meeting customers’ requirement for
new loans or even withdrawals. What type of risk is
this bank facing? Explain how a bank can reduce
this type of risk.
Answer:

c) Is a bank well protected when a loan is given out

on a unsecured basis. Explain.
Answer: