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1. Explain in detail why Banks are special in a modern market economy with specific reference to their roles as (i) intermediaries, (5 points), (ii)
1. Explain in detail why Banks are special in a modern market economy with specific reference to their roles as (i) intermediaries, (5 points), (ii) Liquidity service, (5 points), (iii) Payments systems, (5 points). 2. Explain briefly, the various components of the interest margin charged by Banks on loans, (25 points) 3. Explain the Agency problem in Banking caused by asymmetric information between (a). Depositors and Bank (5 points) (b). Bank and Borrower (5 points) (c) Shareholders and Managers, (5 points) 4. Using the Simple Monetary Model that relates the rate of inflation to the difference between the rate of growth of Money supply and the rate of growth in real output as in equation P = MS - Where: P = rate of inflation rate of change in the P-level overtime MS = rate of growth of growth in the money supply Y = rate growth in real output Using the above simple monetary model, explain how a Central faced with rising inflation can control inflation, (15 points). 5. Explain the potential benefits of regulation of Banks;. What are the potential downsides to some of these regulations? (30 points)
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