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BAN2601 EXAM PACK 2023
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BAN2601 EXAMPACK 2023
UPDATED QUESTIONS
AND ANSWERS
, Ban 2601 Exam Pack
May/June 2018
Question 1
a. NCR consumer protection role:
The right to apply for credit
The National Credit Act provides every person, whether an individual, a group of
people or a company, has the right to apply for credit from any credit provider.
The right not to be discriminated against when applying for credit
Consumers who are applying for credit are further protected against unfair
discrimination by a credit provider. The Act forbids credit providers from
discriminating against consumers on the basis of colour, race, age, political affiliation,
sexual orientation, religious belief, or affiliation to any particular trade union.
The right to be given reasons for credit being declined
The National Credit Act gives a consumer, whose credit application has been
declined by a credit provider, the right to request written reasons explaining why
his/her application for credit has been declined.
The right to be given documents in an official language that the consumer
understands
A consumer has the right to receive documents from a credit provider in an official
language that he/she understands.
The right to confidential treatment
The consumer's right to confidentiality is protected by the provision that any person
or organisation that receives or compiles confidential information on a consumer
must use the information for the sole purpose for which the consumer has given
his/her consent, unless the usage or release of such information is a requirement in
terms of The Act.
b. The National Credit Regulator (NCR) role as a regulator:
The National Credit Regulator (NCR) was established as the regulator under the
National Credit Act 34 of 2005 (the Act) and is responsible for the regulation of the
South African credit industry.
1. It is tasked with carrying out education,
2. research, policy development,
3. registration of industry participants,
4. investigation of complaints,
5. ensuring enforcement of the Act.
6. The NCR is also tasked with the registration of credit providers, credit
bureaux and debt counsellors; and enforcement of compliance with the Act.
Question 2
,2. MONETARY POLICY OBJECTIVES.
1
Under its monetary policy objectives, central banks aim to achieve the following:
a. Maintain a stable exchange rate: depending on the exchange regime the
country has adopted which either be free-floating exchange or fixed/pegged
exchange, and ensuring smooth flow if the market and maintain foreign
currency reserves.
b. Achieve acceptable levels of economic growth: it is a desire of the country to
achieve economic growth, in cases of a recession then an expansionary
monetary policy can be used.
c. Equitable distribution of income: the monetary policy can achieve equitable
distribution of income through lowering the repo rate so that even the poor
can borrow and finance their small to medium businesses at a low cost of
borrowing.
d. Maintain price stability: is the major objective of the monetary policy in South
Africa since the central bank adopted the inflation-targeting approach with a
set range of 3% to 6%.
e. Achieve and maintain a positive balance of payment position: the balance of
payments and the monetary policy have an indirect relationship. A positive
balance of payments can be lowering interest rate which will result in the
depreciation of the local currency in the short run making exports cheaper to
foreigners and imports expensive for local people.
Monetary Policy instruments
1. Setting minimum statutory reserve requirements:
- The bank would be trying to create a deposit fund from which depositors
can recover something in the event of a bank going under.
- The same statutory deposits may be used to alleviate temporary liquidity
problems by the depositing bank.
- The Central bank may use the same method to monitor money supply
growth within the economy. Should the bank feel that inflation is on the
increase, it may increase the statutory reserve requirement in order to
reduce the banks’ ability to create money.
2. Use of open market operations (OMOs):
- The central bank can sell government securities so as to drain excess
cash in the economy
- The central bank can buy back the government securities so as to inject
cash in the economy.
3. Use of interest rate (usually via the overnight accommodation rate or the repo
rate):
- The repo rate is the rate at which banks that participate in the clearing
borrow money from the central bank. It is also used as an indicator to the
direction of short-term interest rates.
- Banks can be either long or short during clearing. If the market is overall
short and is thus strained of liquidity, the central bank may opt to reduce
the repo rate and should it feel that inflation is on the increase because of
money supply growth, the central bank may increase the repo rate.
4. Use of exchange rates
, - The Central bank may use the exchange rate to monitor the level of
foreign currency reserves of a country. Should the foreign currency
reserves increase (because of good export performance of the economy,
the central bank may revalue its currency a move that may result in
imports becoming much cheaper.
-
2. Four ways in which the SARB can fund liquidity shortage:
2 When the central bank fund liquidity shortage, it will be performing the role of Banker
of last resort.
One of the functions of the central bank is to ensure that there is stability within the
financial sector. The Central bank is expected to help alleviate liquidity challenges
should there be some within the market. The mother bank has a number of options to
adopt in this role and these include but not limited to:
1. Opening the rediscount window.
At its own discretion, the SARB can buy back treasury bills of certain tenure,
certain classes of bankers’ acceptances, which are commonly referred to as
class one bills. These are bills that would have been used to finance the
purchase of stocks for export and they have to be accompanied by the central
bank’s CDI forms, which are a proof that the customer has exported some
goods and is awaiting payment within a certain specified period.
2. The overnight accommodation route
Banks facing temporary liquidity problems can also approach the Central bank
and make arrangements for temporary liquidity support without the rest of the
market knowing about it. Occasionally the Central Bank will enter the market
either borrowing or offloading paper.
3. Use of liquidity ratio requirements
The central bank also requires commercial banks and all its other affiliates to
keep a percentage of the assets on the balance sheet in liquid or near money
form.
The ratio varies from time to time and from country to country depending on
the objectives of the central bank at a particular time like in this instances to
alleviate liquidity shortages.
4. Setting minimum statutory reserve requirements
The same statutory deposits may be used to alleviate temporary liquidity
problems by the depositing bank.
2. Repo rate:
3 The repo rate is the rate at which banks that participate in the clearing borrow money
from the central bank. It is also used as an indicator to the direction of short-term
interest rates.
Prime rate:
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