| Q.1 |
Please write the alphabate of selected choice
in the answer column: (06) |
i |
In a rapidly de-regulated business environment which of the following
factor causes the maximum rise in the risk of the entire banking sector?
A) Incompatibility of the computer software
in use in banks
B) Inability of the banks to safeguard against
the resultant volatility in all markets
C) Employee infidelity D)
None of the above |
ii |
Which of the following can give rise to “Reputational Risk”?
A) Rare instances of delay in meeting
inter-bank borrowing repayment commitments
B) Attributes of the bank’s
products or services or employee interaction that are adverse for
the product or service
buyers
C) Exit of a key executive
D) None of the above |
iii |
What is meant by the expression “Systemic Risk”?
A) Risk arising out of failure of internal
operational controls in a bank
B) Risk arising out of the inadequacies
of the information technology (IT) systems of a bank
C) Risk for the entire financial services system
of a country that arises principally out of ill-liquidity or insolvency
of one or several financial institutions
D) None of the above |
iv |
Which is the first indicator of developing weakness in a country’s
external sector?
A) Default on external
loan repayment commitments
B) Requests for re-structuring
of the country’s external debt
C) Steady but sustained rise
in the country’s trade deficit
D) None of the above |
v |
What is meant by foreign portfolio investment?
A) Investment meant for investment in physical
assets
B) Investment meant for deployment in risk
asset portfolios of banks
C) Investment funds to be deployed either
directly or through mutual funds in market securities
D) None of the above |
vi |
Which of the following fall in the category of “Market
Risk”?
A) Likely devaluation of the Pak
Rupee
B) Lack of telecom connectivity in
a bank’s branch network
C) Inadequacy of a bank’s trade
finance supervisory capacity
D) Movements in commodity prices
E) None of the above
|
Q.2 |
If, for a short period
(two or three years) inflation is deliberately understated to bring
down interest rates, and thereafter inflation rises to its realistic
level, which of the following distortions this could create? (05)
|
| |
Borrowing by consumers in excess of their repayment capacity, over-heating
of the economy, and inflation |
| |
Reduced inter-bank borrowing and lending |
| |
Capacity expansion by industry based on temporary low borrowing
cost. The increased capacity becomes unprofitable when borrowing costs
begin to rise once inflation is correctly stated |
| |
Banks expand their branch networks abroad |
| |
Rise in bank profitability builds shareholder expectations too high
about future profits that banks can’t deliver through lending
alone and thus indulge in speculative trading in currencies and stock
markets |
| |
Financial stability is restored |
| |
Over-expansion of bank’s domestic networks and manpower, that
becomes marginally productive and a burden on already reduced future
bank profitability |
| |
Low returns on deposits force savers to indulge in speculative activities
instead of saving |
| |
None of the above |
Q.3 |
State True or False in
the answer column. Give brief reason for your selection at the space
provided below the question: (07) |
i |
Negative real returns on savings result in a net investment loss
to the savers over time |
ii |
During periods of high market liquidity, systemic risk goes up:
|
iii |
High employee mobility is good for the banking sector |
iv |
Foreign portfolio investment is a stable source of foreign exchange
inflows |
v |
In developing countries still burdened with substantial external
debt and rising negative balance of trade liberalization of the foreign
exchange regulations can pose long-term economic dangers |
vi |
Credit Opinion from a Credit Rating Agency is superior to Credit
Reference |
vii |
Failure of one bank leading to the failure of another and another
is called the “domino” effect |
Q.4 (A) |
A consensus is developing
among the bankers that Pakistan does not have enough trained bankers
to keep pace with the increase in branch networks and the expanding
the range of banking products and services. If the sector expands
at 150 branches a year, list which two risk-types would go up and
briefly explain why? (04) |
Q.4 (B) |
Is it advisable for banks to hire agents
on a per transaction commission basis for selling consumer finance
products? What risks if any are involved therein? (05) |
Q.5 |
Not up-dating and expanding
the range of banking products and services on a timely basis can
gradually reduce a bank’s market access and market share,
giving rise to disadvantages that flow from not having a critical
mass of the customer base. Besides developing competitive products
and services, list the other steps a bank must take to ensure growth
in its customer, asset and liability bases. (15) |
Q.6 |
Your bank plans to build
an asset portfolio in housing finance. List your preferences for
developing a sound asset base in terms of (a) the localities where
properties be financed, (b) the customer-types to be financed, and
(c) the property types to be financed. (10) |
Q.7 (A) |
How does compliance participate
in the overall risk supervision activity of a bank? (02) |
Q.7 (B) |
Besides the performance of day-to-day
duties, what is the other critical role of compliance officers and
how does it help the bank? (04) |
Q.7 (C) |
Should compliance officers report
to branch managers, if not, why not then who should they report
to? (04) |
Q.7 (D) |
Of the following indicator trends,
which ones could weaken a country’s currency. Tick in left
hand column. (03) |
| |
Static level of exports while imports continue to rise |
| |
Steadily rising trade deficit |
| |
Political tensions arising out of electoral uncertainties |
| |
Steadily rising payments on external debt while foreign portfolio
and direct is slowing down |
| |
A natural calamity that affects a non-productive territory of the
country |
Q.8 (A) |
Please briefly identify
the factors give rise to Sovereign Risk and Country Risk do highlight
the difference between the two (05) |
Q.8 (B) |
What is meant by “Prime Lending
Rate” . Please explain briefly. (02) |
Q.8 (C) |
List the amounts/costs that must be
included in the formula for determining a bank’s Prime Lending
rate. (03) |
Q.9 |
According to the terms
of Basle Accord, loans to borrowers that are not rated either by
an external rating agency or internally by the banks will automatically
carry 100% risk weight. In a country like Pakistan, which has only
two external credit rating agencies and majority of business are
un-rated, what are the implications for banks capital and profitability?
How these can be avoided/reduced. (15) |
Q.10 |
Governor State Bank of
Pakistan in her recent speech covered Emerging Challenges and risks.
Given below is an extract from her speech. |
|
“Pakistani banks are today faced with new
forms of risks which have altered the nature and type of risk they
are exposed to – aside from standard corporate assets whose
credit risks is changing with the size and complexities of businesses,
banks are now engaging in diverse businesses and sectors and are
now extending their exposure to household sector and growth in bank
trading books has increased exposure to market risk – a recent
phenomena in Pakistan. Concurrently, banks’ overall risk profile
is also affected by the complex interdependencies now emerging because
of cross ownership of financial institutions and corporate sector”.
Do you agree with her assessment. Why and why not.
(10) |
|