Commercial Banking Chapter 1
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Questions and Answers

What is the primary characteristic of a commercial bank?

  • Provision of various financing services
  • Mobilisation of savings through current accounts
  • Provision of current account facilities where payment can be made through issuing cheques (correct)
  • Financing of government through purchase of government securities

    • What do commercial banks act as in the payment system?

  • Only lending agents
  • Only paying agents
  • Both borrowing and lending agents
  • Both collection and paying agents (correct)

    • What is one of the ways commercial banks provide financing to businesses?

  • Through provision of current account facilities
  • Through granting loans and advances (correct)
  • Through mobilisation of savings
  • Through purchase of government securities

    • What is the role of commercial banks in the economy?

    <p>Both credit intermediation and netting and settlement of payments</p> Signup and view all the answers

    What type of accounts do commercial banks mobilise savings through?

    <p>Current, savings, and fixed deposit accounts</p> Signup and view all the answers

    What is the purpose of a commercial bank's involvement in the interbank clearing and settlement system?

    <p>To collect and present payment instruments</p> Signup and view all the answers

    What is the primary purpose of layering in money laundering?

    <p>To make detection as difficult as possible by breaking the linkage between criminals and the proceeds of crime</p> Signup and view all the answers

    What is the third stage of money laundering?

    <p>Integration</p> Signup and view all the answers

    What is one method of layering in money laundering?

    <p>Electronic Funds Transfer between numerous financial institutions</p> Signup and view all the answers

    What is the purpose of creating false invoices in money laundering?

    <p>To provide a false trail of transactions and avoid suspicion</p> Signup and view all the answers

    What is one method of integration in money laundering?

    <p>Property purchase or involvement in business</p> Signup and view all the answers

    What is the overall goal of money laundering?

    <p>To turn criminally derived wealth into legitimate funds</p> Signup and view all the answers

    What is the basis of Islamic banking?

    <p>Shariah principles and profit-sharing</p> Signup and view all the answers

    What is the primary difference between Islamic and Conventional banking?

    <p>Compliance with shariah law</p> Signup and view all the answers

    What is the purpose of channeling penalty charges to charity?

    <p>To comply with shariah principles</p> Signup and view all the answers

    What is the restriction in Islamic banking in terms of activities?

    <p>Dealing with activities that involve riba, Gharar, Maysir, and Haram</p> Signup and view all the answers

    What is the consideration given to in Islamic banking?

    <p>The objective of shariah and the interest of the shareholders</p> Signup and view all the answers

    What is the maximum compensation charge allowed on overdue instalments?

    <p>1% per month</p> Signup and view all the answers

    What is the primary focus of the AMLATFPUAA?

    <p>Prevention of money laundering and terrorism financing offenses</p> Signup and view all the answers

    What is the purpose of the First Schedule of the AMLATFPUAA?

    <p>Listing of reporting institutions under the AMLATFPUAA</p> Signup and view all the answers

    What is the purpose of the Second Schedule of the AMLATFPUAA?

    <p>Listing of serious offenses from various legislation</p> Signup and view all the answers

    Which of the following is NOT a primary focus of the AMLATFPUAA?

    <p>Protection of Human Rights</p> Signup and view all the answers

    What is the scope of the AMLATFPUAA?

    <p>Both financial institutions and designated non-financial businesses and professions</p> Signup and view all the answers

    What is the consequence of committing an offense listed in the Second Schedule of the AMLATFPUAA?

    <p>A person will be subject to investigation and forfeiture of property</p> Signup and view all the answers

    What is the primary function of a commercial bank?

    <p>Accepting deposits and lending to customers</p> Signup and view all the answers

    What defines a bank according to the Financial Services Act 2013?

    <p>A person who carries on banking business</p> Signup and view all the answers

    What is the main purpose of banking regulations?

    <p>To regulate the banking industry and protect citizens</p> Signup and view all the answers

    What is the role of the government in the banking industry?

    <p>To regulate the banking industry</p> Signup and view all the answers

    What is a primary activity of a commercial bank?

    <p>Receiving deposits and making advances to customers</p> Signup and view all the answers

    What is the significance of the banking sector in a country?

    <p>It has a considerable impact on the economy and citizens</p> Signup and view all the answers

    Study Notes

    Introduction to Commercial Banking

    • Commercial banking has a significant impact on a country's financial system, economy, and citizens.
    • Banking industry is highly regulated by the government.

    Definition of Bank and Commercial Bank

    • Banking is defined as a jurisdiction by legislation created and regulated by the government.
    • Banking activities include receiving deposits, making advances or lending, and paying or collecting cheques.
    • A commercial bank is defined as "a person which carries on banking business" (Financial Services Act 2013).

    Functions of Commercial Bank

    • Mobilization of savings through current, savings, and fixed deposit accounts.
    • Provision of various banking facilities and services, such as loans and advances to businesses and individuals.
    • Provision of trade financing services, treasury services, and custody services.
    • Financing of government through purchase of government securities and TBills.
    • Importance of banking business to the economy includes credit intermediation, borrowing, and settlement of payments.

    Anti-Money Laundering and Anti-Terrorism Financing

    • The Anti-Money Laundering and Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLATFPUAA) provides for the offense of money laundering and terrorism financing.
    • The AMLATFPUAA lists reporting institutions, including financial institutions and designated non-financial businesses and professions.
    • Three stages of money laundering:
      • Placement: introducing illegal money into the financial system.
      • Layering: separating illicit proceeds from their source.
      • Integration: turning criminally derived wealth into legitimate funds.

    Islamic Banking vs. Conventional Banking

    • Islamic banking follows the principles of shariah, with trading and profit-sharing arrangements between capital providers and users of funds.
    • Restrictions on dealing with shariah non-compliant activities, such as riba (usury), Gharar (uncertainty), Maysir (Gambling), and Haram (Forbidden).
    • Conventional banking is guided by conventional banking rules and regulations, with no restrictions on shariah non-compliant activities.

    Key Regulations and Laws

    • Financial Services Act 2013 (FSA)
    • Islamic Financial Services Board (IFSB)
    • Anti-Money Laundering and Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLATFPUAA)

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    Test your knowledge on the introduction to commercial banking, including definitions, functions, and differences between Islamic and conventional banks. Learn about banking laws and regulations, and financial services.

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