Related Party Transactions Definition in Malaysian Banking
114 Questions
1 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What can result in large financial losses, leading to a loss of public confidence and financial crises like a 'bank run'?

  • Bank regulations
  • Government bailouts
  • A lapse of duty or failure of competence (correct)
  • Outsiders perpetuating fraud

    • During the 2008 Global Financial Crisis, what did most governments of developed economies resort to in order to support banks?

  • Implementing higher taxes on the banking sector
  • Using taxpayer funds for bank bailouts (correct)
  • Requiring banks to increase profits
  • Changing banking regulations

    • What is the responsibility of the banking industry in terms of public trust?

  • Maintaining public confidence in deposits and funds safety (correct)
  • Maximizing profits at any cost
  • Minimizing customer service to reduce costs
  • Avoiding any government intervention

    • What exposes the banking system to risks such as human error, system malfunction, and fraud?

    <p>Protecting the banking system from malicious or accidental human intervention</p> Signup and view all the answers

    Why are banking regulations formulated according to the text?

    <p>To minimize risks like fraud and human error</p> Signup and view all the answers

    What can erode public confidence and increase costs to the economy and taxpayers according to the text?

    <p>Fraud and other risks</p> Signup and view all the answers

    In dire circumstances, what may the government need to do to support banks?

    <p>Bail out banks using taxpayer funds</p> Signup and view all the answers

    What can lead to the need for a government bailout according to the text?

    <p>Fraud and other risks eroding public confidence</p> Signup and view all the answers

    What is the requirement for export proceeds according to the text?

    <p>Export proceeds must be repatriated within six months in full.</p> Signup and view all the answers

    In what currencies can settlement with non-residents be undertaken as per the text?

    <p>In both Ringgit and foreign currency terms</p> Signup and view all the answers

    What accounts are residents and individuals free to open according to the text?

    <p>Foreign currency accounts with licensed onshore banks and non-resident banks</p> Signup and view all the answers

    How are foreign currency funds credited in foreign currency accounts typically regulated according to the text?

    <p>No restrictions on the source of foreign currency funds</p> Signup and view all the answers

    What is the approval requirement for obtaining financial guarantees from non-residents exceeding RM100 million equivalent according to the text?

    <p>Approval is required for any amount of financial guarantees obtained from non-residents</p> Signup and view all the answers

    What is one of the key features of both the Financial Services Act (FSA) and Islamic Financial Services Act (IFSA)?

    <p>Uniform regulations for governance and supervision of financial institutions</p> Signup and view all the answers

    Which act empowers Bank Negara Malaysia (BNM) to exercise oversight over financial groups?

    <p>Financial Services Act (FSA)</p> Signup and view all the answers

    What is the primary aim of BNM concerning financial institutions' business conduct?

    <p>Promoting fair and professional business practices</p> Signup and view all the answers

    How does the Financial Services Act (FSA) help BNM fulfill its mandate in a complex financial environment?

    <p>By providing regulatory and supervisory powers</p> Signup and view all the answers

    Which legislative framework governs the Islamic financial sector?

    <p>Takaful Act 1984</p> Signup and view all the answers

    What is the main focus of BNM regarding consumer protection in financial services and products?

    <p>Striving to protect consumers' rights and interests</p> Signup and view all the answers

    Under the Financial Services Act (FSA) and Islamic Financial Services Act (IFSA), what does BNM have the authority to do regarding financial institutions?

    <p>Exercise regulatory and supervisory oversight powers</p> Signup and view all the answers

    What is one of the purposes of empowering BNM under the Financial Services Act (FSA) according to the text?

    <p>Promoting safety and soundness of licensed businesses</p> Signup and view all the answers

    Who among the following is considered a 'related party' in a transaction with an institution?

    <p>A shareholder of the institution</p> Signup and view all the answers

    In Malaysian banking, who can be specified by BNM as a 'related party'?

    <p>Any person in a position to influence or control the institution</p> Signup and view all the answers

    Under FSA 2013, what is required of institutions regarding their internal policies and procedures?

    <p>They must ensure they are consistent with prudential standards specified by BNM</p> Signup and view all the answers

    Who must comply with the internal policies and procedures of an institution according to Section 48 of FSA 2013?

    <p>Directors or officers of the institution</p> Signup and view all the answers

    What does Section 50 of FSA 2013 restrict for a licensed person in Malaysian banking?

    <p>Amount of exposure to a single counterparty</p> Signup and view all the answers

    In Malaysian banking, what is considered 'relative' for the purpose of related party transactions?

    <p>Half-blood relative or adopted person</p> Signup and view all the answers

    What governance practices are institutions required to follow under FSA 2013?

    <p>Practices that are effective, accountable, and transparent in managing risks</p> Signup and view all the answers

    What role do directors and officers play in ensuring compliance with internal policies according to FSA 2013?

    <p>They need to ensure compliance with internal policies and procedures.</p> Signup and view all the answers

    According to section 50(2) FSA, how should a banking institution compute its exposure to a single counterparty?

    <p>By aggregating its exposures to the single counterparty and persons connected to it.</p> Signup and view all the answers

    When is a person considered 'connected' to a single counterparty according to BNM SCEL?

    <p>If they are economically dependent on the single counterparty.</p> Signup and view all the answers

    In what ways can a person be 'connected' to a single counterparty according to Appendix 4 of the BNM SCEL?

    <p>Through shared management or directorship.</p> Signup and view all the answers

    What does the BNM SCEL consider when determining if two counterparties are 'connected' in scenarios (a) to (e) of Appendix 5?

    <p>The materiality of their exposures and the substitutability of their relationship.</p> Signup and view all the answers

    Why is it important for a banking institution to consider the connectedness between counterparties?

    <p>To ensure that one counterparty's financial issues do not impact another's ability to fulfill obligations.</p> Signup and view all the answers

    How does Appendix 5 of the BNM SCEL define economic dependency between counterparties?

    <p>When one counterparty relies on the other for financial support or stability.</p> Signup and view all the answers

    What impact can being 'connected' to a single counterparty have on a banking institution's risk exposure?

    <p>Increase risk by amplifying potential failures from connected counterparties.</p> Signup and view all the answers

    'Connectedness' between counterparties is considered under which specific appendices in the BNM SCEL?

    <p>Appendices 4 and 5</p> Signup and view all the answers

    What percentage of ownership typically indicates the normal quantitative test of control for a subsidiary company?

    <p>51-75%</p> Signup and view all the answers

    From a credit risk perspective, why should related party transactions be investigated by the credit officer?

    <p>To ensure transactions are at arm’s length</p> Signup and view all the answers

    In Malaysian banking, how are related party transactions usually described in the notes to the accounts?

    <p>In two categories</p> Signup and view all the answers

    What do related parties trade transactions indicate about the company's dependence?

    <p>Dependence on related parties for purchases or sales</p> Signup and view all the answers

    Why does the credit officer need information about the principal activities of associate and subsidiary companies?

    <p>To understand the synergy among companies</p> Signup and view all the answers

    What is the range of ownership percentage that indicates significant influence for an associate company?

    <p>20-50%</p> Signup and view all the answers

    What is the main purpose of disclosing related party transactions in financial statements?

    <p>To ensure transparency and avoid conflicts of interest</p> Signup and view all the answers

    How can related party transactions impact a lender's risk position if not properly monitored?

    <p>Increase lender's risk exposure</p> Signup and view all the answers

    What information can the credit officer assess by analyzing the breakdown of fixed assets by categories?

    <p>Potential hidden reserves in the company's assets</p> Signup and view all the answers

    What does a Negative Pledge involve?

    <p>Not pledging assets as security for loans from other lenders</p> Signup and view all the answers

    What does a 'Negative FO P R RIN C T O A M B M LE ER C CO IA P L Y PU R PO Pledge' indicate about a company?

    <p>A commitment not to pledge assets for other loans</p> Signup and view all the answers

    What does a Collateral Arrangement for Banking Facilities help determine?

    <p>The company's priority position vis-à-vis other lenders</p> Signup and view all the answers

    What potential benefit can a company achieve by outsourcing some production processes, as mentioned in the text?

    <p>Reduction in risk of obsolescence of fixed assets</p> Signup and view all the answers

    How does analyzing the maturity profile of term loans assist the credit officer?

    <p>In assessing the bank's priority position vis-à-vis other lenders</p> Signup and view all the answers

    What does 'being ranked pari-passu' with other lenders signify for a bank?

    <p>'Equal footing' status in terms of collateral with other lenders</p> Signup and view all the answers

    What is a common risk associated with not re-valuing properties acquired long ago?

    <p>Potential overvaluation of fixed assets leading to inaccurate financial statements</p> Signup and view all the answers

    What does the statement of financial position primarily assess?

    <p>Extent of shareholders’ financial commitment</p> Signup and view all the answers

    Which aspect of the company does the statement of comprehensive income reflect?

    <p>Wealth of shareholders</p> Signup and view all the answers

    What do the sayings 'in the black' and 'in the red' indicate about a company?

    <p>Profitability level</p> Signup and view all the answers

    What is the main purpose of the statement of comprehensive income?

    <p>Report on management performance</p> Signup and view all the answers

    Why is it significant to assess a company's assets based on fair market valuation?

    <p>To ascertain financial strength accurately</p> Signup and view all the answers

    What can a 'black statement' signify about a company's financial status?

    <p>Marginal pass or distinction</p> Signup and view all the answers

    What is a limitation of the income statement mentioned in the text?

    <p>It indicates whether future performance will improve or deteriorate.</p> Signup and view all the answers

    Why should a lender not wholly rely on the 'latest' financial statements according to the text?

    <p>Because they may not accurately reflect the company's current state.</p> Signup and view all the answers

    How do the terms 'in the black' and 'in the red' reflect company performance?

    <p>'In the black' can be a distinction or a marginal pass</p> Signup and view all the answers

    What does the statement of comprehensive income act as for management?

    <p>Performance review report</p> Signup and view all the answers

    What aspect of the cashflow statement is considered a limitation as per the text?

    <p>It may show satisfactory cashflow despite difficulties faced by the company.</p> Signup and view all the answers

    Why should a lender attempt to obtain key financial information used internally by a company's management?

    <p>To assess the company's debt repayment capabilities.</p> Signup and view all the answers

    In what scenario might a lender find the entire year's profits commendable despite poor performance in the last three months?

    <p>If the company has been performing well for seven to eight months.</p> Signup and view all the answers

    Why is it mentioned that lenders should not rely wholly on 'latest' financial statements in the text?

    <p>Because the latest statements may not reflect the true financial state of the company.</p> Signup and view all the answers

    What information do lenders typically rely on for debt repayments according to the text?

    <p>Future performance indicators of the company.</p> Signup and view all the answers

    What does the director's name and extent of shareholdings indicate?

    <p>The director's commitment in the business</p> Signup and view all the answers

    How can acquisitions and disposals impact a company's financial performance?

    <p>Alter financial performance and condition</p> Signup and view all the answers

    What is a debenture in the context of business financing?

    <p>A type of debt security</p> Signup and view all the answers

    How does under-provision for impaired debts affect a company's profit?

    <p>Results in an overstatement of profit</p> Signup and view all the answers

    What should a credit officer analyze when a company is venturing into a new line of business?

    <p>Whether changes were well-planned with financial and operational support</p> Signup and view all the answers

    What can information on acquisitions indicate about a company?

    <p>Shifts in core business activities</p> Signup and view all the answers

    Why is it important for a credit officer to analyze the issuance of shares or debentures?

    <p>To assess the intended use of raised funds</p> Signup and view all the answers

    What does a 'black statement' typically signify about a company's financial status?

    <p>A distinction or a marginal pass</p> Signup and view all the answers

    What is the main focus of the statement of comprehensive income according to the text?

    <p>Reflecting management's day-to-day decisions on company's bottom line</p> Signup and view all the answers

    What is the primary purpose of assessing the fair market valuation of a company's assets?

    <p>To verify the company's financial position suggested by the balance sheet</p> Signup and view all the answers

    What can a red statement indicate about a company's financial status?

    <p>A total failure</p> Signup and view all the answers

    In the context of related party transactions, what can being 'connected' to a single counterparty do to a banking institution's risk exposure?

    <p>Increase risk exposure through shared liabilities</p> Signup and view all the answers

    Why do companies use red ink to represent debts or losses in financial statements?

    <p>To indicate losses or debt positions</p> Signup and view all the answers

    What does the statement of comprehensive income act as for management, according to the text?

    <p>'Report card' on management performance</p> Signup and view all the answers

    What does the term 'in the red' typically indicate about a company's financial status?

    <p>Loss-making status</p> Signup and view all the answers

    What action is necessary for the auditor when there is non-compliance with established standards?

    <p>Make a disclosure in the audit opinion</p> Signup and view all the answers

    Why does non-compliance with standards weaken a company in terms of borrowing power?

    <p>It results in a negative judgment by analysts</p> Signup and view all the answers

    What is the major limitation of the statement of financial position discussed in the text?

    <p>It is historic and static</p> Signup and view all the answers

    Why are assets represented as 'needs of the business' in the statement of financial position equation?

    <p>To reflect what is financed by sources of cash</p> Signup and view all the answers

    What does the fact that assets are normally recorded at historical costs imply, according to the text?

    <p>Hidden reserves due to an increase in current fair market valuation</p> Signup and view all the answers

    What does the statement of financial position report about a business?

    <p>Financial position at a single point in time</p> Signup and view all the answers

    Why is it important for a credit officer to review the external auditor's opinion of the financial statements?

    <p>To identify any weaknesses or non-compliance issues</p> Signup and view all the answers

    Why is it important for the credit officer to assess the breakdown of stock categories?

    <p>To check for consistency in business operations</p> Signup and view all the answers

    What could a high level of finished goods in a contract manufacturing company indicate?

    <p>Possible existence of rejected goods not written off</p> Signup and view all the answers

    Why would a credit officer be concerned if the finished goods level in a manufacturing company is unusually high?

    <p>It suggests a possible stock obsolescence issue</p> Signup and view all the answers

    How does the breakdown of stock categories help in assessing the ease of liquidation?

    <p>By providing a basis to evaluate discount value by category</p> Signup and view all the answers

    What consideration determines whether a company is classified as an associate or subsidiary?

    <p>The level of control or influence held by the parent company</p> Signup and view all the answers

    Why would a credit officer analyze investments in associate companies?

    <p>To understand the parent company's control and influence levels</p> Signup and view all the answers

    How does a high level of finished goods in a contract manufacturing company impact profitability?

    <p>Negatively affects profits due to possible stock obsolescence issues</p> Signup and view all the answers

    Considering stockholdings as security, why is it essential to assess the breakdown by categories?

    <p>To evaluate discount value by category and ease of liquidation</p> Signup and view all the answers

    What does the depreciation recorded in the statement of comprehensive income primarily consist of?

    <p>Depreciation charged for office equipment, furniture, and fixtures</p> Signup and view all the answers

    Why is it important to jointly assess both the manufacturing statement and the statement of comprehensive income?

    <p>To determine the cost of goods sold accurately</p> Signup and view all the answers

    What aspect of a construction or property concern can be analyzed through a detailed statement of comprehensive income?

    <p>Rental income</p> Signup and view all the answers

    Which financial statement includes the breakdown of profits and revenues from various activities such as property development?

    <p>Statement of comprehensive income</p> Signup and view all the answers

    What does the bottom line in the detailed manufacturing statement represent?

    <p>Cost of goods manufactured</p> Signup and view all the answers

    Why is it essential to jointly assess both the manufacturing statement and the statement of comprehensive income?

    <p>To determine the cost of goods manufactured accurately</p> Signup and view all the answers

    What enables a focused analysis on various activities undertaken by a construction or property concern?

    <p>Detailed statement of comprehensive income</p> Signup and view all the answers

    What does the detailed manufacturing statement help determine about a company's financials?

    <p>'Cost of goods manufactured' related aspects</p> Signup and view all the answers

    Why is a qualified audit opinion often regarded as a warning signal on reported results?

    <p>It suggests there are issues with the accuracy or completeness of the financial statements.</p> Signup and view all the answers

    What differentiates a qualified auditor’s opinion on an annual report from an unqualified opinion?

    <p>The presence or absence of issues affecting the financial statements.</p> Signup and view all the answers

    Why can a qualified audit opinion serve as a warning signal to the bank?

    <p>It indicates potential financial risks associated with the audited company.</p> Signup and view all the answers

    Why is the note on significant events subsequent to the statement of financial position date important for credit risk assessment?

    <p>It influences potential risks and uncertainties post-financial position date.</p> Signup and view all the answers

    How much trust can a lending bank place on audited financial statements of a borrower company?

    <p>Trust varies based on the auditor's reputation and findings.</p> Signup and view all the answers

    Why might it be considered pointless to read the directors' report and auditors' report as they are usually standard?

    <p>They lack useful insights or deviations from standard content.</p> Signup and view all the answers

    Name three types of contingent liabilities that a company may have and explain their implications.

    <p>Bank guarantees, pending lawsuits, environmental obligations.</p> Signup and view all the answers

    Why do detailed financial statements assist in assessing a company's financial performance?

    <p>They provide in-depth insights into revenue sources and cost structures.</p> Signup and view all the answers

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser