MOB (Final Preparation) - Som Puthea PDF

CENTER FOR BANKING STUDIES MONEY AND BANKING Final Exam Preparation 1. Mr. Vireak wants to buy a car from the U.S. The car costs $100,000. If the exchange rate of ABA Bank is below: Buying USD is 4,050 KHR...

CENTER FOR BANKING STUDIES MONEY AND BANKING Final Exam Preparation 1. Mr. Vireak wants to buy a car from the U.S. The car costs $100,000. If the exchange rate of ABA Bank is below: Buying USD is 4,050 KHR Selling USD is 4,080 KHR How much money of KHR that Mr. Vireak needs to change to USD to buy the car from the U.S.?  To get $100,000 We need to multiply 100,000 by 4,080 100,000 x 4,080 = KHR 4,080,000,000 So Mr. Vireak needs KHR 408,000,000 to change to USD to buy the car from U.S. 2. What is barter system?  Barter System is a system of exchange, wherein goods or services are directly exchanged for other goods or services, without using a medium of exchange such as money. ច្រើនតែជាការច ោះដូរទំនិញ និង ទំនិញ ច្រើនជាងទំនិញច ោះដូរនឹងចេវាកម្ម។ 3. What is money? Explain the 3 characteristics of money.  Money is anything that is generally accepted in payment for goods or services or in the repayment of debts.  3 characteristics of money are:  Medium of Exchange (means of payment): In almost all market transactions in our economy, money in the form of currency or checks is a medium of exchange; it is used to pay for goods and services. The use of money as a medium of exchange promotes economic efficiency by eliminating much of the time spent in exchanging good and services.  Unit of Account: The second role of money is to provide a unit of account; that is, it is used to measure value in the economy. We measure the value of goods and services in terms of money, just as we measure weight in term of kilograms or distance in terms of kilometers.  Store of Value: Money also functions as a store of value; it is a repository of purchasing power over time. A store of value is used to save purchasing power from the time income is received until the time it is spent. 4. What is the financial market?  Financial markets perform the essential economic function of channeling funds from households, firms and government who have saved surplus funds by spending less than their income to those who have a shortage of funds because they wish to spend more than they earn. (Financial markets such as bond and stock market) 5. Explain the differences between debt instruments (bond, mortgage) and equity market (common stock)? SOM PUTHEA 1  CENTER FOR BANKING STUDIES MONEY AND BANKING  Debt instruments (bond, mortgage): is a contractual agreement by the borrower to pay the holder of the instrument fixed dollar amounts at regular intervals (interest and principal payments) until a specified date ( the maturity date), when a final payment is made. (-) Debt holders do not share in corporation’s profitability or asset value. (+) corporation must pay all its debt holders before it pays its equity holders.  Equity market (common stock): which are claims to share in the net income (income after expense and taxes) and asset of a business. Owning stock means that you own a portion of the firm and thus have the right to vote on issues important to the firm and to e elect its directors. (-) the corporation must pay all its debt holders before it pays its equity holders. (+) equity holders benefit directly from any increases in the corporation’s profitability or asset value. 6. If the coupon bond’s price is below its face value:  c. The yield to maturity bigger than the coupon rate 7. Explain the differences between primary market and secondary market?  Primary market: is a financial market in which new issues of a security, such as a bond or a stock, are sold to initial buyers by the corporation or government agency borrowing the funds. (IPO=Initial Public Offering)  Secondary market: is a financial market in which securities that have been previously issued can be resold. 8. Explain the difference between direct finance and indirect finance?  Direct Finance (ហិរញ្ញប្បទានច យផ្ទាល់): Borrowers and lenders deal directly with each other. Borrowers sell securities directly to lenders in financial markets.  Indirect Finance (ហិរញ្ញប្បទានច យម្ិនផ្ទាល់): A Financial Intermediaries such as a bank, stands between lender and borrower. It involves in asset transformation. 9. What is financial intermediaries? Please give 5 examples of financial intermediaries.  Financial Intermediaries are financial institution that acts as a bridge between lenders and borrowers by accepting funds from lenders and loaning funds to borrowers.  Example: - Banks - Insurance companies - Stock exchanges - Mutual fund companies - Credit unions 10. What is check or cheque?  Check or cheque is an instrument which contains an unconditional order, drawn on a banker, directing to pay a certain sum of money to the person whose name is specified in the instrument. 11. What are bill of exchange and promissory note?  Bill of exchange: is a document contains an unconditional order, directing a person, to pay a certain amount to a specified person. SOM PUTHEA 2  CENTER FOR BANKING STUDIES MONEY AND BANKING  Promissory note: A promissory note is a signed document containing a written promise to pay at stated sum to a specific person or bearer at a specific time or on demand and it is not an order to pay. 12. What is electronic money? Please give an example of electronic money.  លុយចេឡិរ្ែូនិរ ជាែ (Mobile banking, prepaid card, debit card) េនកតដលរង់ចប្ើកកាែ prepaid េី្ែូវចេនើេុំពីធនាគារជាែិ។ 13. Explain the differences between money market and capital market?  Money Market is a financial market in which only short-term debt instruments (maturity less than one year) are traded.  Capital Market is the market in which longer term debt (maturity of one year or greater) and equity instruments are traded. 14. How does interest rate affect economy (consumption, investment and net export)?  Consumption: high interest rate, Lower consumption and vice versa  Investment: high interest rate, Lower investment and vice versa  Net Export: higher interest rate, appreciation of local currency, thus higher export price leading to lower net export. 15. The table below is the money aggregates of Cambodia. 2005 2006 M1 Currency in circulation 800 880 Demand deposits 1,200 1,350 Traveler’s checks 10 15 M2 Retail money market mutual fund shares 770 750 Saving account deposits 8,100 9,150 Money market deposit accounts 2,330 2,555 Small denomination time deposits 750 850 Suppose Money Supply in Cambodia has only M1 and M2 (doesn’t have M3) as shown above a) Calculate M1 and M2 in 2005 and 2006  M12005 = Currency in circulation + Demand deposits + Traveler’s checks = 800 + 1,200 + 10 = 2,010  M22005 = M1 + Retail money market mutual fund shares + Saving account deposits + Money market deposit accounts + Small denomination time deposits = 2,010 + 770 + 8,100 + 2,330 + 750 = 13,960  M12006 = Currency in circulation + Demand deposits + Traveler’s checks = 880 + 1,350 + 15 = 2,245 SOM PUTHEA 3  CENTER FOR BANKING STUDIES MONEY AND BANKING  M22006 = M1 + Retail money market mutual fund shares + Saving account deposits + Money market deposit accounts + Small denomination time deposits = 2,245 + 750 + 9,150 + 2,555 + 850 = 15,550 b) Calculate the money supply (monetary aggregates) in 2005  Money Supply (monetary aggregates) = M2 = 13,960 16. What is M1, M2, and M3?  M1: The narrowest measurement, includes only the most liquid assets.  M2: a broader measure, include assets not usable as mean of payment.  M3: The broadest commonly used measure of money, includes a much higher percentage of illiquid assets than M2. 17. When KHR is appreciated against USD  a) The import increases 18. Explain the differences between centralized exchange & over-the Counter (OTC)?  Centralized exchange: Secondary markets where buyers and sellers meet in a central, physical location.  Over-the-Counter (OTC): Decentralized secondary markets where dealers stand ready to buy and sell securities electronically. 19. What is the difference between nominal interest rate and real interest rate?  Nominal interest rate: make no adjustment for inflation  Real Interest rate: is adjusted for changes in price level so it more accurately reflects the cost of borrowing 20. All debt securities and equities securities that have maturity date more than 1 year are bought and sold in:  b) Capital market 21. If exchange rate changes from $1 = KHR 4,100 to $1 = KHR 4,050  KHR is appreciated 22. Please explain the meaning of currency appreciation and currency depreciation with clear example.  Appreciation: រូប្ិយវែថុជាែិចឡើងថ្លចៃ ៅចពលចធៀប្ជាម្ួយ រូប្ិយប្័ណ្ណប្រចទេ។ Ex. 1$ = 4,000 ចរៀល  Depreciation: រូប្ិយវែថជាុ ែិធ្លៃក់ថ្លចៃ ៅចពលចធៀប្ជាម្ួយ រូប្ិយប្័ណ្ណប្រចទេ។ Ex. 1$ = 4200 ចរៀល 23. What kind of tools that hedger uses to hedge the risk?  Futures  Forward  Options  Call option: allow holder to buy the asset  Put option: allow holder to see the asset 24. What is foreign exchange market? Who participate in this market? SOM PUTHEA 4  CENTER FOR BANKING STUDIES MONEY AND BANKING  Foreign exchange market (FX market) is the market in which domestic currencies are bought and sold against one another  Arbitrager, Hedger, and Speculator. 25. How inflation influences the standard of living of the people?  ប្ោះពាល់ដល់េនកមានរំណ្ូលែិរខ្ៃំង  ប្ោះពាល់ដល់េនកមានរំណ្ូលម្ធយម្ប្នដិរប្នដរួ  ម្ិនមានផលប្ោះពាល់ដល់េនកមានរំណ្ូលខ្ពេ់ចទ 26. In Cambodia, which institution control banking sector and which institution control non- banking sector? Please give 3 examples of financial institutions in banking sector and non- financial institution in non-banking sector.  កនុង្ប្ចទេកម្ពជាុ ស្ថថប្័នតដល្រប្់្រងចលើវិេយ័ ធនាគាររឺ៖ ធនាគារជាែិថ្នកម្ពជាុ  Commercial bank  Specialized bank  MFI = ្រឹោះស្ថថនម្ី្កូហិរញ្ញវែថុ ម្ិនទទួល្ាក់ប្ចញ្ញើ  MDI = ្រឹោះស្ថថនម្ី្កូហិរញ្ញវែថុ ទទួល្ាក់ប្ចញ្ញើ  ែូប្ប្ដរូ ្ាក់  កនុង្ប្ចទេកម្ពជាុ ស្ថថប្័នតដល្រប្់្រងចលើវិេយ័ ម្ិនតម្នធនាគាររឺ៖ ្កេួងចេដឋកិរច និង ហិរញ្ញវែថុ  Insurance Firms  Pawn shop (ហាងប្ញ្ច ំ) 27. If the central bank issues currencies more than the needs in the economic operation so:  c) The inflation rate increases 28. If the coupon bond is price at its face value:  a. The yield to maturity equals the coupon rate 29. What is treasury bills, certificate of deposit (CD), commercial papers, federal funds, repurchase agreements (repos), stocks, mortgages, corporate bonds?  Treasury bills: is short-term debt instruments issued by government to finance government operations.  Certificate of deposit (CD): is debt instrument sold by a bank to depositor that pays annual interest of a given amount and maturity pays  Commercial papers: is a short-term debt instruments used by large banks and corporations  Federal funds: often referred to as fed funds, are excess reserves that commercial banks and other financial institutions deposit at regional Federal Reserve banks; these funds can be lent, then, to other market participants with insufficient cash on hand to meet their lending and reserve needs. SOM PUTHEA 5  CENTER FOR BANKING STUDIES MONEY AND BANKING  Repurchase agreements (repos): is short loans for which treasure bills serve as collateral.  Stocks: is equity claims on the net income and assets of a corporation.  Mortgages: loans to households and firms for purchase of housing, land, or other real structures, where the structure of land itself serves as collateral for the loans.  Corporate bonds: long-term bonds issued by corporations with very strong credit rating. 30. Explain the differences between adverse selection and moral hazard?  Adverse selection:  Prior to a transaction, savers lack information about investors’ characteristics.  Investors with worst projects are most eager to sell securities.  Moral hazard: ច្កាយចពល្ប្ែិប្ែតិការ saver ម្ិនានតាម្ នចម្ើល investor  After a transaction, savers do not observe investors’ behavior.  Investors have incentives to misuses saver’s funds. SOM PUTHEA 6