Bbf307 05 : Business Of Assessment Answers
1). Select any TWO (2) objectives of Bank Negara and critically analyse the successes and misses of these objectives in the context of the central bank’s role in the country’s monetary and banking structure.
2). Though electronic banking has been a buzzword for a few decades now, the services provided still has its ups and downs. Take any TWO (2) electronic banking services you are familiar with and evaluate their strengths and weaknesses.
3). There are four factors discussed in the course material on the pricing of consumer loans. Examine these factors on their relevancy with the current changes in the banking environment.
4).
(a) Elaborate on the main differences between credit lines and revolving loans.
(b) As a banker, which type of loan would you recommend to a business owner who might be facing liquidity risks? Justify your answer.
Answer:
1). The two main objectives of Bank Negara Malaysia (BNM) are, firstly, to handle the interbank market transactions in order to manage the liquidity of the country’s financial system and secondly, to act as the banker as well as the financial advisor to the government of the country (Bank Negara Malaysia 2018). BNM has been successful in fulfilling both its objectives, the bank provides regular advice to the government related to the management of the country’s internal and external debts. With the help of BNM, the government is able to enter into agreements that are beneficial for the country. In order to manage financial stability in the market, the bank comes up with the monetary policy, which helps in controlling the market fluctuations. This role played by the bank helps to control inflation rate in the country (BNM 2018).
2). Strengthens and weaknesses of Internet Banking
Internet banking has eased the life of people, as people are able to undertake many activities with the help of internet banking like paying utility bills, transferring funds, online shopping, etc. However, anything and everything offered by the digital world has some weaknesses and strengths
Strengths: easy to access; 24/7 accessibility is available; managing the account is very easy; internet banking is very convenient when it comes to undertaking financial transactions; internet banking is fast and efficient, and the list of advantages offered by internet banking goes on.
Weaknesses: one of the main weaknesses of the internet banking is that if someone is not having internet connection then, they cannot utilize this service. If a person is a beginner, then he may find difficulty in handling things. Another major weakness is that there is great possibility of account hacking which is being heard very much these days. If the server of bank is down, the user faces difficulty in using this service (Agarwal 2016).
Strengths and weaknesses of Automated Teller Machine (ATM)
Strengths: With the help of ATM’s, money can be withdrawn from anywhere at any time. Physical boundary is no longer a hindrance in the withdrawal of money. It is easily accessible and users are saved from standing in long queues in banks.
Weaknesses: When the ATM’s server is down, cash withdrawal becomes difficult. If any problem is there in the debit card then, the user might not be able to transact. In some banks, extra fess is also charged if ATM’s of other banks are used. There is a risk of robbery after using the ATM. Apart from this ATM’s can run out of cash which may cause trouble to the user (Poly Technic Hub 2017).
3). Pricing of Consumer loans
On the basis of the current changes in the lending pattern of banks, the main factors that are considered by the banks include the creditworthiness of the business or the person, current income, future earnings, and the assets owned by the person. These factors have been given importance because of the increasing bad debts in the banks (Iedunote 2017). The past repayments of loans are checked by the banks to ensure that whether a person is reliable or not. The current income as well as the future earnings is checked in order to ensure that a person is financially capable to repay the loan amount. The reason behind knowing the assets owned by the borrower is that if any bad debt occurs, the banks can liquefy these assets and use that amount as repayment of the loan (BDC 2018).
4). Difference between credit line and revolving loan
|
Credit Line |
Revolving loan |
|
Credit line is multipurpose in nature and can be used for different types of purchases. |
Revolving loan is used for smaller purchases and is like credit cards where maximum borrowing limit is predefined. |
|
The interest rate is lower in credit line |
The interest rate is higher as compared to credit line. |
|
Credit line requires collateral |
Revolving credit does not require collateral (Lorette 2018). |
Loan to business owner to save from liquidity risk
The best loan that can be provided to the business owner who is facing a liquidity risk is revolving loan facility. This is so because this loan is useful at the time when the business is facing high income fluctuations. This is the best loan that can be utilized by the business to support their working capital at the time of cash crunch. Also, the business has to pay interest only on the amount being withdrawn by them and not on the entire credit limit. Hence, this will not be too hard on the business owner’s pocket (CFI 2018).
References:
Agarwal, Anuj. Advantages and Disadvantages of Internet Banking. 2016. https://toughnickel.com/personal-finance/Advantages-and-Disadvantages-of-Internet-Banking.
Bank Negara Malaysia. Monetary Operations: Objectives. 2018. https://www.bnm.gov.my/index.php?ch=en_fxmm_mo&pg=en_fxmm_mo_overview&ac=281.
BDC. “4 factors a banker will consider before lending you money.” Bdc.ca. 2018. https://www.bdc.ca/en/articles-tools/money-finance/get-financing/pages/how-get-small-business-loan.aspx.
BNM. “About the bank.” Bnm.gov.my. 2018. https://www.bnm.gov.my/index.php?ch=en_about&pg=en_intro&ac=641&lang=en.
CFI. “Revolving Credit Facility.” Corporatefinanceinstitute.com. 2018. https://corporatefinanceinstitute.com/resources/knowledge/finance/revolving-credit-facility/.
Iedunote. “7 Factors Need Consideration before Sanctioning Banks Loans.” iedunote.com. 2017. https://iedunote.com/sanctioning-banks-loans.
Lorette, Kristie. “Line of Credit Vs. Revolving Credit.” Smallbusiness.chron.com. 2018. https://smallbusiness.chron.com/line-credit-vs-revolving-credit-3697.html.
Poly Technic Hub. “Advantages and disadvantages of ATM (Automated Teller Machine).” Polytechnichub.com. 2017. https://www.polytechnichub.com/advantages-disadvantages-atm-automated-teller-machine/.
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