Lecture 2 Banks

Question 1

What are the three types of banks in Malaysia?

Answer 1

Commercial Banks, Islamic Banks, Investment Banks

Question 2

What caused Washington Mutual’s failure?

Answer 2

Giving home loans to those who couldn’t afford them

Question 3

What caused Lehman Brothers’ collapse?

Answer 3

Risky mortgage bets and housing crash

Question 4

What is a Commercial Bank?

Answer 4

Licensed by central bank to provide traditional banking services

Question 5

What are the three functions of commercial banking?

Answer 5

Deposits and savings, providing finance, payments

Question 6

What are current accounts for?

Answer 6

Facilitating money transmission

Question 7

What are savings accounts for?

Answer 7

Facilitating short and long term savings

Question 8

What is bank credit?

Answer 8

Money a bank lends or is prepared to lend

Question 9

What is an overdraft?

Answer 9

Facility customers to borrow up to a stated maximum amount or limit, via negative balance in current account

Question 10

What is a term loan?

Answer 10

Loan repaid over time in periodic instalments comprising principal and interest and fixed intervals

Question 11

What are short term loans for?

Answer 11

Grandted for temporary or seasonal needs, under one year

Question 12

What are long term loans for?

Answer 12

To finance capital expenditure

Question 13

What is a fixed interest loan?

Answer 13

Loan with unchanging interest rate over term

Question 14

What is a variable interest loan?

Answer 14

Interest rate tied to overnight policy rate and bank’s cost of funds

Question 15

What is a secured loan?

Answer 15

Loan backed by collateral assets

Question 16

What is an unsecured loan?

Answer 16

Loan approved based on borrower’s credibility, with higher interest rate

Question 17

What are payment services?

Answer 17

(Making payments) Transfers between accounts, banks, internationally

Question 18

What is Net Interest Margin (NIM)?

Answer 18

Measure efficiency in lending and borrow process. Interest income minus interest paid out, divided by total assets

Question 19

What are examples of other bank income?

Answer 19

Commissions and Fees, service charges, Investment income, FX, Insurance

Question 20

What is the basis of Islamic banking?

Answer 20

Complies with Islamic law and principles

Question 21

What is prohibited in Islamic banking?

Answer 21

Interest (riba) and speculation (gamble/gharar)

Question 22

What are Islamic banks focused on?

Answer 22

Halal activities and fair business risk and profit-sharing

Question 23

How do Islamic banks handle deposits?

Answer 23

Not interest-oriented

Question 24

How do Islamic banks finance?

Answer 24

Through asset sales with profit margins

Question 25

What is a Shariah Committee?

Answer 25

Body ensuring compliance with Islamic law

Question 26

Do Islamic banks pay zakat?

Answer 26

Yes, as part of their religious obligation

Question 27

What activities are prohibited for Islamic banks?

Answer 27

not sllowed to to finance business involving pork, alcohol, gambling, speculation

Question 28

How do Islamic banks view clients?

Answer 28

As partners or investors and entrepreprneur

Question 29

What is Sukuk?

Answer 29

Islamic bond backed by assets or receivables

Question 30

What is Musharakah?

Answer 30

Profit-sharing partnership where losses are equity-based

Question 31

What is Mudharabah?

Answer 31

Investor provides funds; entrepreneur manages project

Question 32

What is Ijarah?

Answer 32

Leasing where investors own asset, issuer pays rent

Question 33

What is Murabahah?

Answer 33

Deferred payment sale; holders get repayment not ownership

Question 34

What is BBA?

Answer 34

Deferred sale price; no asset ownership

Question 35

What do investment banks specialize in?

Answer 35

Providing services to large firms and capital markets

Question 36

What is underwriting?

Answer 36

Guaranteeing sale of stocks or bonds

Question 37

What is a firm commitment?

Answer 37

Bank buys entire issue, resells in market

Question 38

What is best efforts underwriting?

Answer 38

Bank tries to sell entire issue but does not guarantee

Question 39

What is private placement?

Answer 39

Selling bonds to selected investors privately

Question 40

What is an IPO advisory role?

Answer 40

Help firm issue, value, time, and price shares

Question 41

What documents are required in underwriting?

Answer 41

Prospectus, credit rating, exchange listing

Question 42

What are Mergers&Acquisitions roles of investment banks?

Answer 42

Assist in acquisitions, financing, legal issue

Question 43

What are other functions of investment banks?

Answer 43

Asset management, securities broking, research