CQIB UPDATED EXAM SCRIPT QUESTIONS AND ANSWERS
RATED A+
✔✔Bills of exchange and promissory notes - ✔✔Specialised instruments, being an
unconditional order in
writing between parties, where the bank purchases the bill amount from the borrower,
deducting charges.
On maturity the bill is presented to the borrower and the full amount is collected.
✔✔Equipment leasing and hire purchase - ✔✔Common forms of borrowing for the
financing of plant,
machinery and vehicles by individuals and businesses.
Taxation benefits are often linked to these forms of debt, making them popular funding
options.
✔✔Trade finance - ✔✔Facilitating import and export transactions including lending,
letters of credit, factoring (accounts receivable financing), export credit and insurance.
✔✔Insurance - ✔✔Many banks offer insurance as part of their products and services.
Depending on what is
being insured against, the insurer agrees to pay money to help cover costs should
certain
events occur.
This is called a "transfer of risk" because the insurer is taking the risk of meeting the
cost of the loss.
✔✔Wealth Management Products - ✔✔1. Allocated pension
2. Managed funds and superannuation
3. Annuity
4. Investment Growth Bond
✔✔How do banks make money? - ✔✔1. Lending money at rates higher
than they pay for deposits. The
difference is the spread, or the net interest income, and when the bank's earning assets
divide that net interest income, it is the net interest margin.
2 Charging fees for products and
services such as loans, deposit
and payment services, as well
as other services such as travellers' cheques or foreign exchange fees.
, ✔✔Credit risk - ✔✔The probability of loss due to a borrower's failure to make payment
on any type of debt.
✔✔Liquidity Risk - ✔✔The potential inability of a bank to meet it's payment obligations
in a timely and cost-effective manner.
✔✔Interest rate risk - ✔✔The risk that movement in the interest rates will have an
adverse effect on the value of an investment.
✔✔Liquidity - ✔✔Is determined by the banks ability to meet all its anticipated expenses,
including making payments on debt and using only liquid assets.
✔✔Solvency - ✔✔The ability of a bank to meet it's long term financial obligations.
✔✔Profitability - ✔✔The ability to generate earnings compared to expenses and other
relevant costs incurred over a specific period of time.
Can use metrics such as Return on Asset (ROA) and Return on Equity ratios (ROE) to
determine.
✔✔Assets of a Bank - ✔✔Interest earning assets =>
-Home loans
-Loans to customers
-Business and corporate loans
-Cash
Non-Lending Interest
Earning Assets
Non-Earning Assets
-Premises e.g branches, offices
-Equipment e.g computers, furniture, vehicles
Assets = Liabilities + Share Capital
✔✔Liabilities of a Bank - ✔✔Interest Bearing Liabilities
-Transaction deposits
-Savings deposits
-Investment deposits
-Other demand deposits
-Debt issues
Equity-
Share Capital
RATED A+
✔✔Bills of exchange and promissory notes - ✔✔Specialised instruments, being an
unconditional order in
writing between parties, where the bank purchases the bill amount from the borrower,
deducting charges.
On maturity the bill is presented to the borrower and the full amount is collected.
✔✔Equipment leasing and hire purchase - ✔✔Common forms of borrowing for the
financing of plant,
machinery and vehicles by individuals and businesses.
Taxation benefits are often linked to these forms of debt, making them popular funding
options.
✔✔Trade finance - ✔✔Facilitating import and export transactions including lending,
letters of credit, factoring (accounts receivable financing), export credit and insurance.
✔✔Insurance - ✔✔Many banks offer insurance as part of their products and services.
Depending on what is
being insured against, the insurer agrees to pay money to help cover costs should
certain
events occur.
This is called a "transfer of risk" because the insurer is taking the risk of meeting the
cost of the loss.
✔✔Wealth Management Products - ✔✔1. Allocated pension
2. Managed funds and superannuation
3. Annuity
4. Investment Growth Bond
✔✔How do banks make money? - ✔✔1. Lending money at rates higher
than they pay for deposits. The
difference is the spread, or the net interest income, and when the bank's earning assets
divide that net interest income, it is the net interest margin.
2 Charging fees for products and
services such as loans, deposit
and payment services, as well
as other services such as travellers' cheques or foreign exchange fees.
, ✔✔Credit risk - ✔✔The probability of loss due to a borrower's failure to make payment
on any type of debt.
✔✔Liquidity Risk - ✔✔The potential inability of a bank to meet it's payment obligations
in a timely and cost-effective manner.
✔✔Interest rate risk - ✔✔The risk that movement in the interest rates will have an
adverse effect on the value of an investment.
✔✔Liquidity - ✔✔Is determined by the banks ability to meet all its anticipated expenses,
including making payments on debt and using only liquid assets.
✔✔Solvency - ✔✔The ability of a bank to meet it's long term financial obligations.
✔✔Profitability - ✔✔The ability to generate earnings compared to expenses and other
relevant costs incurred over a specific period of time.
Can use metrics such as Return on Asset (ROA) and Return on Equity ratios (ROE) to
determine.
✔✔Assets of a Bank - ✔✔Interest earning assets =>
-Home loans
-Loans to customers
-Business and corporate loans
-Cash
Non-Lending Interest
Earning Assets
Non-Earning Assets
-Premises e.g branches, offices
-Equipment e.g computers, furniture, vehicles
Assets = Liabilities + Share Capital
✔✔Liabilities of a Bank - ✔✔Interest Bearing Liabilities
-Transaction deposits
-Savings deposits
-Investment deposits
-Other demand deposits
-Debt issues
Equity-
Share Capital
