UNIVERSITY EXAMINATION 2022/2023

EXAMINATION FOR THE DEGREE OF BACHELOR OF COMMERCE

BBC 2301: Money and Banking Year III Supplementary & Special
Date: Wednesday, 19th July 2023 Time: 8.30am – 10.30am
Instructions
Answer Question ONE (compulsory) and Any Other Two.

QUESTION ONE (30 Marks)

a) Keynes suggest that people still prefer to hold money even when they can earn
interest by lending it to other people or by buying interest yielding bonds. Explain
three reasons why this happens (6marks)

b) With examples, describe the role played by non-banking financial institutions

towards the growth and development of Kenyan Economy. (10 Marks)

c) There is a big debate about low bank lending to the MSMEs. Briefly explain why
banks may resolve to lend money to the government rather than other small
borrowers in an economy. (8 marks)
d) Central bank is the bank of commercial banks. Explain (6 Marks)

QUESTION TWO (20 MARKS)

a) Using a well labelled diagram explain the relationship between the interest rate
and the quantity of money held by individual in the economy. (8 Marks)

b) Briefly explain the determinant of the money supply and money demand in the
economy (8 marks)
c) With examples Differentiate between convertible paper money and in convertible
paper money. (4 Marks)

QUESTION THREE (20 MARKS)

a) Explain the measures taken by central banks to protect the commercial banks
from collapsing. (8 marks)
b) Using a well labelled diagram explain the relationship between the interest rate
and the quantity of money held by individual in the economy. (8 Marks)

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c) Distinguish between Devaluation and depreciation of a currency in the financial
markets. (4 Marks)

QUESTION FOUR (20 MARKS)

a) Monetary policies as a tool of economics stabilization are not very effective in

developing countries like Kenya. Briefly explain any five limitations that hinder
their effectiveness. (10 marks)
b) Briefly explain why government safety nets are sometimes unable to control the
collapse or failure of banking institutions as witnessed in the last five years.
(6 Marks)

c) The money markets and the financial markets are two very important concepts in
financial systems. With examples distinguish between the two concepts.
(4 Marks)

QUESTION FIVE (20 MARKS)

a) Compare and contrast the role of the following theories of money towards the
understanding of money demand. Cambridge theory of money, Friedman theory
of money and the quantity theory of money. (12 Marks)

b) Briefly explain two primary, two secondary functions of money in Kenya.

(8 marks)

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