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Monetary Theory and Policy Exam Guide

The document outlines the examination structure for the FIN 3102: Monetary Theory and Policy course for the 2024/2025 academic year at the School of Business. It includes various questions related to financial intermediaries, inflation, monetary policy recommendations, and theories of money demand. Students are required to answer Question One and any two additional questions within a two-hour time frame.

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faithmutune339
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18 views2 pages

Monetary Theory and Policy Exam Guide

The document outlines the examination structure for the FIN 3102: Monetary Theory and Policy course for the 2024/2025 academic year at the School of Business. It includes various questions related to financial intermediaries, inflation, monetary policy recommendations, and theories of money demand. Students are required to answer Question One and any two additional questions within a two-hour time frame.

Uploaded by

faithmutune339
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

UNIVERSITY EXAMINATIONS: 2024/2025

SCHOOL OF BUSINESS
ORDINARY EXAMINATION FOR DEGREE IN BACHELOR OF
COMMERCE/ PROCUREMENT & LOGISTICS/ INTERNATIONAL
BUSINESS MANAGEMENT/ PUBLIC MANAGEMENT
FIN 3102: MONETARY THEORY AND POLICY
PART-TIME
DATE: DECEMBER, 2024. TIME: 2 HOURS
INSTRUCTIONS: Answer Question ONE and Any other TWO Questions

QUESTION ONE [20 MARKS]

a) Financial intermediaries play a key role in economic development of any economy. Using an
example of a financial intermediary in Kenya, explain any two roles the selected financial
intermediaries play. [4 Marks]
b) High levels of inflation inhibit economic growth and cause the Kenya Shilling to lose value
compared to international currencies, thereby discouraging the purchase of Kenyan goods and
services. Assume that you are a member of Monetary Policy Committee, explain your
recommendations on how this can be remedied. [4 Marks]
c) Explain how
i. The appreciation of Kenya Shilling affects Kenya`s Balance of Payment [2 Marks]
ii. Central Bank Rate (CBR) adjustment affects investment [2 Marks]
d) Baumol Inventory approach to transactional demand for Money tries to describe money
demand in terms of a trade-off. Explain any three assumptions of this model. [5 Marks]

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e) “To facilitate commercial banks` liquidity management in Kenya, The Central Bank of Kenya
(CBK) requires commercial banks to maintain their Cash Reserve Ratio based on a daily
average level”. Explain the relevance of this statement and relate it to an objective of monetary
policy. [3 Marks]

QUESTION TWO [15 MARKS]

a) Discuss any two macroeconomic phenomenon that have happened in Kenya over the last
five years and explain how monetary policy tools were used to give remedy.
[6 Marks]
b) According to the Fishers, transaction approach demand for money depends on three factors.
Discuss the demand for money theory according to Fishers and explain how the three
factors are related. [5 Marks]
c) Differentiate between fiscal policy and monetary policy. [4 marks]

QUESTION THREE [15 MARKS]

a) Describe Milton Friedman’s version of the quantity theory of money. [7 Marks]

b) There are several monetary policy instruments that can be used to effect monetary policies.
With a specific monetary policy objective in mind [illustrate in your answer], explain how
any four monetary policy instruments can be applied to achieve this monetary objective.
[8 Marks]
QUESTION FOUR [15 MARKS]

a) Describe any two limitations to the process of credit creation in developing countries.
[4 Marks]
b) Explain the premise behind Tobin’s Portfolio Approach to Money Demand and point
out how this approach differs from the liquidity preference theory as postulated by J.M
Keynes. [8 Marks]
c) Explain Fiat Money and give an example of how this has been applied in Kenya in
recent time. [3 Marks]

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