209engoct2008
1
ECS209-J
Oct/Nov 2008
This paper consists of xx pages plus instructions for the completion of a mark reading sheet.
The formulas that you should use appear on page xx.
SECTION A - ESSAY QUESTIONS
Answer any TWO of the following three questions. Each question carries 25 marks. Section A therefore counts 50 marks.
IMPORTANT: Please write on both sides of each page
QUESTION 1
(a)
Lenders and borrowers are seldom able to do a direct deal because of a clash of interests.
How do financial intermediaries meet the needs of both lenders and borrowers?
(4)
Explain the following quote:
“Banks are unique because they can create money out of thin air.”
(4)
Explain how the Banks Act 94 of 1990 regulates banks as far as risk management and balance sheet requirements are concerned.
(6)
(d)
Describe how accommodation policy is applied by the SARB.
(6)
(d)
Read the following quote from an article that appeared on the Finance24 website on 10
January 2008 under the title “Keep an eye on interest rates in 08”. “US Fed” refers to the
Federal Reserve Bank, which is the central bank of the United States of America. Answer the questions that follow:
(b)
(c)
Lings believes that a recession can be avoided if the US Fed cuts interest rates sufficiently in the months ahead, but still manages to keep inflation under control.
"It's a very difficult situation to manage, …”
(i)
(ii)
Explain why a cut in interest rates may help to avoid a recession in the US.
Why is keeping inflation under control while trying to avoid a recession “a difficult situation to manage”?
(5)
[25]
QUESTION 2
(a)
Briefly discuss the three elements that regulation consists of.
(3)
(b)
Give two reasons why, throughout the world, insurance institutions are subject to government regulation. (2)
(c)
Explain why employers or sponsors may prefer defined contribution retirement funds to
[TURN OVER]
ECS209-J
2
Oct/Nov 2008
defined benefit retirement funds by referring to:
(i) the advantages of
ECS209-J
Oct/Nov 2008
This paper consists of xx pages plus instructions for the completion of a mark reading sheet.
The formulas that you should use appear on page xx.
SECTION A - ESSAY QUESTIONS
Answer any TWO of the following three questions. Each question carries 25 marks. Section A therefore counts 50 marks.
IMPORTANT: Please write on both sides of each page
QUESTION 1
(a)
Lenders and borrowers are seldom able to do a direct deal because of a clash of interests.
How do financial intermediaries meet the needs of both lenders and borrowers?
(4)
Explain the following quote:
“Banks are unique because they can create money out of thin air.”
(4)
Explain how the Banks Act 94 of 1990 regulates banks as far as risk management and balance sheet requirements are concerned.
(6)
(d)
Describe how accommodation policy is applied by the SARB.
(6)
(d)
Read the following quote from an article that appeared on the Finance24 website on 10
January 2008 under the title “Keep an eye on interest rates in 08”. “US Fed” refers to the
Federal Reserve Bank, which is the central bank of the United States of America. Answer the questions that follow:
(b)
(c)
Lings believes that a recession can be avoided if the US Fed cuts interest rates sufficiently in the months ahead, but still manages to keep inflation under control.
"It's a very difficult situation to manage, …”
(i)
(ii)
Explain why a cut in interest rates may help to avoid a recession in the US.
Why is keeping inflation under control while trying to avoid a recession “a difficult situation to manage”?
(5)
[25]
QUESTION 2
(a)
Briefly discuss the three elements that regulation consists of.
(3)
(b)
Give two reasons why, throughout the world, insurance institutions are subject to government regulation. (2)
(c)
Explain why employers or sponsors may prefer defined contribution retirement funds to
[TURN OVER]
ECS209-J
2
Oct/Nov 2008
defined benefit retirement funds by referring to:
(i) the advantages of