A1: Banking

Question 1

What is the role of banks

Answer 1

• Provide liquidity to the financial system
• Act as financial intermediaries
• Distribution of economic and business information among customers and finacial markets of all countries

Question 2

What are the types of banks in South Africa

Answer 2

• Traditional deposit taking/ comercial/retail banks
• Development banks
• Reserve/central banks
• Investment banks
• Community banks

Question 3

Traditional deposit taking/ comercial/retail banks

Answer 3

• Accepting deposits, issuing loans, providing savings accounts or basic investment products
• Usually public companies listed on the stock exchange

Question 4

Development banks

Answer 4

• Alternative financial instituions providing microfinance and community development
• Provide credit through higher risk loans
• Usually funded by the governement

Question 5

Reserve/central banks

Answer 5

• Achieve and maintain price stability in the interests of balanced and sustainable economic growth
• Lender of last resort in exceptional circumstances

Question 6

Investment banks

Answer 6

• Debt raising and equity financing for coporations and governments

Question 7

Trading book

Answer 7

A portfolio of financial instruments held by the bank, which are actively traded and which are to facilitate trading for the customers, to profit from trading spreads between bid and ask prices or to hedge against various types of risks

Question 8

Sources of revenue for banks

Answer 8

• Net interest income
• Non-interest income
• Trading income from trading book

Question 9

Sources of cost for banks

Answer 9

• Operational expenses
• Cost of credit (loan loss)

Question 10

Main risks faced by banks

Answer 10

• Credit risk
• Market risk
• Operational risk
• Liquidity risk

Question 11

Other risks faced by banks

Answer 11

• Business strategic risks
• Currency risk
• Pre-payment risk
• Model risk