The Monetary and Financial Systems

Associate Banking Diploma — Core Subject The Monetary and Financial Systems
Objective To help you understand the functions of the Tanzania financial institutions and markets, of which you are a part, in particular: - the role and activities of financial intermediaries; - the implications of economic policy for the banking system and its customers; - the regulatory environment in which financial institutions operate; - the principles of corporate finance and risk management; - the factors influencing interest and exchange rates.
SYLLABUS
1. Money and Inflation
	1.1	The nature and functions of money and liquidity. The value of money; the use of indices in measures changes in money’s value.
	1.2	The composition of the money stock. Alternative measures of the money stock. Alternative measures of money and liquidity in a modern economy (and in Tanzania in particular). Inflation: its causes and effects
2. Corporate Sector Financial Assets
	2.1	Corporate sector financial assets ad liabilities and sources and uses of funds including knowledge of instruments used in short-term and long-term borrowing and finances.
	2.2	The nature of exposure to risk from interest and exchange rate movements. The reason for hedging these risks and the instruments used.
3. Personal Sector Finances and the Housing Market
	3.1	Personal sector assets and liabilities, sources and uses of funds, knowledge of instruments used in personal borrowing and saving.
	3.2	The effects on the personal sector of changes in economic policy (particularly changes in interest rates).
	3.3	Mortgage finances and the housing market - key developments since the late 1970s (including the effects of deregulation and competition).
4. Tanzania Financial Institutions
	4.1	The nature of financial intermediation. The principal institutions involved in financial intermediation and the main features of their balance sheets.
	4.2	The regulatory framework in which banks operate and the implications for their operations and for the size and structure of their balance sheets.
	4.3	The regulatory environment for non-bank institutions, insurance business and investment business.
	4.4	The role of the Bank of Tanzania.
5. Financial Markets in Tanzania
	5.1	The main financial markets in Tanzania, including the discount market, the various dollar ‘wholesale’ markets, the eurocurrency market and the capital market.
	5.2	The instruments traded and also the main participants in each market, including reference to the Bank of Tanzania.
6. The Money Supply
	6.1	The determinants of broad money supply growth, including the way in which factors, such as the following affect the money supply: - budget surplus or deficit; - public sector debt sales; - bank lending and ‘external’ factors
	6.2	The interrelationship between changes in the money supply and changes in bank/non-bank institutions balance sheets.
7. Interest Rates
	7.1	The determinants of the general level of interest rates and the details of how the Bank of Tanzania operates in the financial markets.
	7.2	The determinants of the general pattern of interest rates on different types of deposits/loans/financial instruments, including the term structure of interest rates.
	7.3	Distinction between ‘real’ and nominal interest rates. The relationship between domestic, international and eurocurrency interest rates.
8. Economic Policy
	8.1	Aims of economic policy. The effectiveness and limitations of monetary policy an its relationship with fiscal policy. General techniques of monetary control.
	8.2	The influence of monetary policy on the banking system. Principles of demand management.
9. Balance of Payments
	9.1	The structure of the balance of payments in general and of Tanzania’s in particular.
	9.2	Causes of changes in current and capital account balances; methods available to governments to adjust current and capital account balances.
10. Exchange Rates
	10.1	Determinants of exchange rate movements, including the relationship between interest rates and exchange rates.
	10.2	The different types of exchange rate regime (fixed and floating systems).
THE EXAMINATION Time Allowed: Three hours Examination format: Nine questions from which you are required to answer any four. Each question carries 25 marks. RECOMMENDED READING 1. TIOB (2003) The Monetary and Financial System, Central Printing Works, Dar es Salaam. 2. B J Beecham, The Monetary and Financial System (Pitman) 3. P Bond, The Monetary and Financial System: Personal Course for Bankers (Northwick Publishers) or 4. BPP, The Monetary and Financial System: Study Text (BPP Publishing) 5. D Goacher The Monetary and Financial System (CIB/ Bankers Books) 6. R Apps The Monetary and Financial System - Bankers Workbook (CIB/Sheffield Hallam University) 7. CIB Associateship Study Guide: Core Subjects (CIB/Bankers Books)