PEC2143 (JULY 2021) KPTM BANGI

4 Money & Banking

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PEC2143 (JULY 2021) KPTM BANGI

MONEY SUPPLY

1. Coins
2
Fiat money
Notes
M1
3. Demand deposits at
commercial banks
M2
4. Savings & Fixed deposits at
commercial banks Narrow M3
5.
Near
Negotiable Bills & BNM’s
Money Broad
Certificates
Near
Money
6. Savings & Fixed deposits with other
Financial Institutions, Merchant Banks &
Discount Houses

Narrow Quasi Money = M2 – M1

Broad Quasi Money = M3 – M1

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PEC2143 (JULY 2021) KPTM BANGI

MULTIPLE-CHOICE QUESTIONS

1. Mary deposits RM100 into her savings account every month. Her daughter, Carol, keeps all her
coins in CIMB bank. These are examples of money functioning as
A. a store of value.
B. commodity money.
C. a medium of exchange.
D. a standard of deferred payments.

2. Saving accounts are included in ________

A. M1, M2 and M3
B. M1 but not M2
C. M2 but not M3
D. M2 and M3

3. The minimum amount of reserves a bank is required to hold is known as __________

A. the money multiplier
B. total reserves
C. excess reserves
D. required reserves

B. Which of the following is a tool available to the Bank Negara for controlling the money
supply?Reserve requirement
C. Discount rate
D. Open market operations
E. All of the above

4. Suppose Sarah withdraws RM100 from his checking account and deposits it into her Savings
account. This transactions causes M1 __________
A. increase by rm100 and m1 to remain the same
B. decrease by rm100 and m2 to remain the same
C. decrease by rm100 and m2 to increase by rm100
D. remain the same and m2 to increase by rm100

5. Deposit creation occurs when _____________

A. a person puts cash in a bank
B. a person deposits a payroll check into his or her account at a bank
C. banks make loans to borrowers
D. banks offer check-writing privileges

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PEC2143 (JULY 2021) KPTM BANGI

6. A higher reserve requirement _________________

A. reduces deposit creation
B. increases the ability of banks to make loans
C. lowers the interest rate
D. increases the borrowing capacity of borrowers

7. Assume the reserve requirement is 10 percent, demand deposits are RM 100 million, total reserves
are RM13 million. If the reserve requirement is increased to 12 percent, the banking system will
have _____________
A. excess reserves equal to zero.
B. excess reserves equal to RM 1 million
C. an increase in the money multiplier
D. a deficiency of reserves equal to RM 5 million

8. The main reason for people to hold money to buy things is referred to as ___________
A. speculative motive
B. transaction motive
C. precautionary motive
D. profit motive

9. Commodity money can be best defined as ______________

A. an item that serves the function of money but has no value as anything else
B. an item that serves the function of money and also has other uses
C. the price of a currency to another
D. all of the above

10. M2 can be defined as

A. M1 + saving and fixed deposit in all banks
B. M2 + quasi money
C. M2 + savings and fixed deposit in other financial institutions
D. M1 + narrow money

11. Accepting deposits from individuals and firms and providing loans to the general public are the
basic functions of _________________
A. commercial banks
B. Bank Negara Malaysia
C. insurance companies
D. all of the above

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PEC2143 (JULY 2021) KPTM BANGI

12. Bank Negara Malaysia is responsible to _______________

A. pay the national debt
B. provide loans to consumer
C. receive deposits from the public
D. control money supply

13. Which of the following is not a function of the central bank?

A. Issuing of currency
B. Banker to the government
C. Banker to the other banks
D. Providing loans to the public

14. Which of the following statement is not true?

A. The precautionary demand for money is due to uncertainty about the receipt of future
income
B. The precautionary demand for money is due to unexpected expenditures
C. The precautionary demand for money is related to income
D. The precautionary demand for money is not related to income

15. A medium of exchange is _________

A. what sellers generally accept and buyers generally use to pay for goods and services
B. an asset that can be used to transport purchasing power from one period of time to another
C. a standard unit that provides a consistent way of quoting prices
D. the ability to buy something today but to defer payment to the future

16. The motives of holding money that encourages investors to hold bonds when interest rates are low,
with the hope of selling them when interest rates are high, is the _____________ motive.
A. precautionary
B. speculative
C. transaction
D. profit

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PEC2143 (JULY 2021) KPTM BANGI

17. Money that can be directly used for transaction is _____________

A. M1
B. M2
C. Near money
D. Broad money

18. Which of the following is included in M2, but NOT in M1?

A. Currency held outside banks
B. Savings accounts
C. Demand deposits
D. Travelers check

19. The required reserve ratio is 20%. If new deposits of RM 1,000 is made, loans increase by
________
A. RM 1,000
B. RM 4,000
C. RM 5,000
D. RM 6,000

20. If the bank had demand deposits of $ 50 million and it faced a 25 percent required reserve ratio, it
would be required to have how many reserves?
A. $ 50 million
B. $ 37.5 million
C. $ 25 million
D. $ 12.5 million

21. Which of the following will lead to a decrease in the demand for money?
A. A decrease in interest rate.
B. A decrease in the price level.
C. An increase in the aggregate output.
D. A decrease in the supply of money.

22. Which of the following would not be included in the M3 definition of money?
A. Deposits with non-bank financial intermediaries.
B. Term deposits with banks.
C. Banks deposits with the Reserve Bank.
D. Cash in circulation.

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PEC2143 (JULY 2021) KPTM BANGI

23. Given that the initial deposit received by bank A from Mr. jack is RM1000 and the value of reserve
is RM100, then the value of cash ratio is
A. 90 percent
B. 10 percent
C. 5 percent
D. 50 percent

24. The speculative motive of demand for money depends mainly on the
A. general price level.
B. money supply.
C. interest rate.
D. level of income.

25. If the central bank wishes to increase the money supply then it should
A. increase the interest rate
B. increase the discount rate
C. buy government securities in the open market
D. all of the above

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PEC2143 (JULY 2021) KPTM BANGI

TRUE OR FALSE QUESTIONS

1. When the price of a product is stated in terms of dollars and cents, then the money is functioning

as a unit of account. (T/F)

2. The money supply designated M1 is the sum of currency and non-checkable deposits. (T/F)

3. The currency component of M1 includes both coins and paper money. (T/F)

4. The checkable deposit of the Federal government at the Federal Reserve Banks are a component

of M1. (T/F)

5. The use of credit cards increases the M1 money supply. (T/F)

Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

STRUCTURED QUESTIONS

QUESTION 1

Table 1 shows the money supply for Nigeria in 2016.

Table 1

Items Million
Paper Money 5,000
Bank Negara Certificates 12,000
Negotiable certificates of deposits of commercial bank 7,500
Negotiable certificates in other financial institutions 8,000
Fixed and Savings deposits in other financial institutions 6,000
Fixed and Savings deposits in commercial banks 10,000
Current deposit in commercial banks 85,000
Fiat money 7,555

a. Calculate the amount of:

i. Coins (2 points)

ii. M1 (2 points)

iii. M2 (3 points)

iv. M3 (3 points)

v. Narrow quasi money (2 points)

b. List THREE (3) types of money. (3 points)

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PEC2143 (JULY 2021) KPTM BANGI

QUESTION 2

The following table shows the money supply of Panama for 2017.

Table 1

Items Million

Demand deposits of the private sector 96,100

Fiat money 30,000

Repurchase agreements placed with commercial banks 135,000
Paper money 17,000
Saving and fixed deposits in commercial banks 71,250
Saving and fixed deposits in other banking institutions 26,000
Negotiable certificates with commercial banks 41,500
Bank Negara certificates 30,000

Based on the information above, calculate:

a. Coins (2 points)

b. M1 (2 points)

c. M2 (3 points)

d. M3 (2 points)

e. Narrow quasi money (2 points)

f. Broad quasi money (2 points)

g. List any TWO (2) characteristics of money (2 points)

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PEC2143 (JULY 2021) KPTM BANGI

QUESTION 3

The following table shows the total money supply for Berlin in 2018.

Table 1

Items Million
Saving and fixed deposits in other banking institutions 15,000

Currency in circulation 30,000

Repurchase agreements (Repo) placed with commercial banks 135,000
Saving and fixed deposits in commercial banks 71,250
Demand deposits of the private sector 96,100
Negotiable certificates of deposits (NCDs) 41,500
Foreign currency deposits with commercial banks 30,000

a. Using the information given in table 1, calculate the following.

i. M1 (2 points)

ii. M2 (3 points)

iii. M3 (2 points)

iv. Narrow quasi money (2 points)

v. Broad quasi money (2 points)

b. If the required cash ratio is 10% and a commercial bank has

RM1 000 000 in checkable deposits appearing on the liability side of its
balance sheet, calculate;

i. Total cash reserve (2 points)

ii. Total money supply (2 points)

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Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 4

Table 1 shows the money supply for Malaysia from 2011 to 2014.

Table 1

Fiat money Demand deposits M2

Year
(RM million) (RM million) (RM million)
2011 22,147.8 58,580.4 362,511.6
2012 23,896.8 65,175.3 383,541.9
2013 26,101.4 76,002.7 426,060.9
2014 28,617.0 85,651.5 534,162.7

Calculate:

a. Assuming that the amount of paper money for 2011 and 2012 are RM 15,230 (4 points)
and RM 17,450 respectively. Calculate the amount of coins for both years.

b. Find M1 for each year. (4 points)

c. Calculate the narrow quasi money for the years 2013 and 2014. (4 points)

d. List THREE (3) functions of money. (3 points)

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Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 5

Table 1 shows a balance sheet of OCBC Bank.

Table 1

Assets Liabilities

Cash RM 25,000 Deposits RM 100,000

Loans RM 75,000
Total RM 100,000 Total RM 100,000

a. Define cash ratio and calculate its value. (4 points)

b. Calculate: (6 points)

i. Money multiplier.

ii. Total money supply.

iii. Total credit created.

c. List THREE (3) limitations of credit creation. (3 points)

d. List TWO (2) characteristics of money. (2 points)

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PEC2143 (JULY 2021) KPTM BANGI

QUESTION 6

Table 1 shows the balance sheet of MUFG Bank in 2017.

Table 1

Assets (RM) Liabilities (RM)

Cash Reserve 14,000 Deposits 70,000
Loans 56,000

Total 70,000 Total 70,000

a. Define cash ratio and calculate its value.

(3 points)

b. Based on the cash ratio, calculate:

i) Money multiplier.
(2 points)

ii) Total money supply.

(2 points)

iii) Total credit created

(2 points)

iv) Total reserves

(2 points)

c. List TWO (2) types of money. (2 points)

d. State TWO (2) examples of the commercial bank. (2 points)

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Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 7

Table 1 shows the balance sheet of Affin Bank.

Table 1

Assets (RM) Liabilities (RM)

Cash 30,000 Deposits 150,000

Loans 120,000
Total 150,000 Total 150,000

a. Based on the information above, calculate: (8 points)

i. Cash reserve ratio

ii. Money multiplier

iii. Total money supply

iv. Total credit created

b. Assume Affin Bank receives a deposit of RM 50,000 from a customer and (4 points)
faces a reserve requirement of 5%. Determine how much the bank would
lend out. Show your answer on the Affin Bank balance sheet.

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PEC2143 (JULY 2021) KPTM BANGI

c. Table 2 shows the money supply for Malaysia from 2016 to 2018. (3 points)
Calculate M1 for each year.

Table 2

Fiat money Negotiable certificates Current deposit

Year
(RM million) (RM million) (RM million)

2016 35,000 77,300 56,700

2017 44,670 65,380 43,780
2018 65,890 12,600 66,111

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PEC2143 (JULY 2021) KPTM BANGI

QUESTION 8

Table 1 shows the money supply for Malaysia from 2014 to 2016.

Table 1

Currency in circulation Demand deposit M2

Year
(RM million) (RM million) (RM million)
2014 78 950 175 000 356 780
2015 85 345 150 000 456 980
2016 95 556 210 564 509 790

a. Assume that the amount of coins for 2014 and 2015 are RM 22,160 and RM 17,450
respectively, calculate :

i. paper money for 2014 and 2015. (4 points)

ii. M1 for 2014 and 2015. (4 points)

iii. narrow quasi money for 2014 and 2015. (4 points)

b. Assume RHB Bank receives a deposit of RM 35,000 from a customer and faces a (3 points)
reserve requirement of 4%. Determine how much the bank would lend out. Show
your answer on the RHB Bank balance sheet.

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Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

QUESTION 9

Table 1 shows the total money supply for Malaysia in 2018.

Table 1

Items RM Million
Coins 10,000
Paper money 25,000
Negotiable certificates 140,000
Saving and fixed deposits in other financial institutions 61,300
Demand deposits in commercial banks 95,000
Saving and fixed deposits in Maybank Berhad 33,500
Bank Negara certificates 20,000

a. Using the information given in Table 1, calculate:

i. Fiat money (2 points)

ii. M1 (2 points)

iii. M2 (3 points)

iv. M3 (2 points)

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PEC2143 (JULY 2021) KPTM BANGI

b. Table 2 shows the balance sheet for ODBC Bank

Table 2

ODBC BANK
Assets (RM) Liabilities (RM)
Cash Reserve 12,500 Deposit 50,000
Loan 37,500
50,000 50,000

If the required cash reserve ratio is 25%, calculate;

i. Total reserve (2 points)

ii. Total money supply (2 points)

iii. Total credit created (2 points)

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Compiled by: haslin hs

PEC2143 (JULY 2021) KPTM BANGI

SHORT ESSAY QUESTIONS

1. Explain THREE (3) characteristics of money. (6 points)

2. List FOUR (4) functions of Bank Negara Malaysia. (4 points)

3. List FOUR (4) limitations to credit creation. (4 points)

4. Explain THREE (3) functions of the commercial bank. (6 points)

5. Briefly explain THREE (3) functions of money in an economy. (6 points)

6. Define credit creation. (2 points)

7. List THREE (3) types of money. (3 points)

8. Explain TWO (2) motives for holding money according to (4 points)

Keynesian’s approach

9. List TWO (2) types of Monetary Policy. (2 points)

10. Define the terms below: (4 points)

i. Al - Mudharabah
ii. Al - Wadiah

11. Explain any TWO (2) tools of Monetary Policy. (6 points)

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