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Usafm Text Bank C 2
Usafm Text Bank C 2
MULTIPLE-CHOICE QUESTIONS
Go to Multiple choice questions - Memorandum
Answer the following questions by selecting the appropriate answer from the list below.
Question 1
The South African Reserve Bank (SARB) defines its primary objective as the
Question 2
Who appoints the three deputy governors of the SARB?
Question 3
What is the main reason for the SARB’s operations in the financial markets?
Question 5
Which ONE of the following statements with regard to the open market operations of the SARB is
correct?
A. The number of reverse repo transactions that the SARB can enter into is limitless.
B. Foreign exchange swap transactions of the SARB are becoming increasingly important.
C. Open market purchases of securities by the SARB are aimed at creating a liquidity shortage.
D. Open market operations by the SARB are only performed in the secondary markets.
Question 6
Which of the following policies may be effective to counteract the impact of procyclicality within
the financial system?
Question 8
Who is responsible in South Africa for management of public debt?
Question 9
What is the responsibility of the Financial Surveillance Department within the foreign exchange
control framework?
Question 1
Discuss the measures used by the SARB to encourage and support the development of sound,
well-managed banking institutions.
Question 2
What is the objective of the Monetary Policy Committee (MPC) of the SARB?
Question 3
Explain the concept of the transmission mechanism of monetary policy.
Question 4
Provide examples of how the SARB drains excess liquidity from the market.
Question 5
Explain the SARB’s approach to macroprudential supervision.
Question 6
Elaborate on a central bank’s role in the maintenance and improvement of a country’s payment
system.
Question 7
Privatisation of government accounts holds several advantages to government and the economic
system. List these advantages and explain how they are brought about.
Question 8
List the advantages of the concentration of the note issue in central banks.
Question 9
Describe the main reasons why central banks hold foreign exchange reserves.
Read the statements below and indicate whether they are true or false.
Question 1
The SARB’s core operations are implemented by the branches of the SARB.
Question 2
In order to drain liquidity from the market, the SARB buys dollars from its counterparties on a spot
basis while simultaneously selling these dollars on a forward basis.
Question 3
An important function of the Bank Supervision Department of the SARB is the licensing of banks.
Question 4
The CPD accepts long-term deposits from public sector entities.
Question 5
The main function of the SARB branches is to ensure that there is an adequate supply of new
notes and coins to meet the demand by the banks and to replace unfit notes.
Question 1
The level of the inflation target in South Africa is announced by the South African Reserve Bank
Governor/Minister of Finance.
Question 2
Clearing (commercial) banks need to comply with the cash reserve requirement on a daily/
average basis.
Question 3
The interest of reverse repos issued by the SARB is capped at the level of the prevailing Treasury
bill/repo rate.
Question 4
The South African Multiple Option Settlement (SAMOS) system settles transaction on a pre-
funded/payment-versus-payment basis.
Question 5
The inflation target is a range/ point target.
Answer the following questions by selecting the appropriate answer from the list below.
Question 1
The South African Reserve Bank (SARB) defines its primary objective as the
Question 2
Who appoints the three deputy governors of the SARB?
Question 3
What is the main reason for the SARB’s operations in the financial markets?
Question 5
Which ONE of the following statements with regard to the open market operations of the SARB is
correct?
A. The number of reverse repo transactions that the SARB can enter into is limitless.
B. Foreign exchange swap transactions of the SARB are becoming increasingly important.
C. Open market purchases of securities by the SARB are aimed at creating a liquidity shortage.
D. Open market operations by the SARB are only performed in the secondary markets.
Question 6
Which of the following policies may be effective to counteract the impact of procyclicality within
the financial system?
Question 8
Who is responsible in South Africa for management of public debt?
Question 9
What is the responsibility of the Financial Surveillance Department within the foreign exchange
control framework?
Question 10
Question 1
Discuss the measures used by the SARB to encourage and support the development of sound,
well-managed banking institutions.
Question 2
What is the objective of the Financial Stability Committee (FSC) of the SARB?
The objective of the FSC is to complement the price stability objective of the SARB through
the formulation and implementation of appropriate macroprudential policy measures to
limit the cost of system-wide distress in the financial system.
Question 3
Explain the concept of the transmission mechanism of monetary policy.
Question 4
Provide examples of how the SARB drains excess liquidity from the market.
Stability in the financial system can be achieved by, firstly, an effective regulatory
infrastructure; secondly, by effective and well-developed financial markets; and thirdly, by
effective and sound financial institutions. In its pursuit of financial stability, the Bank relies
on market forces to the fullest possible extent and believes that any action taken to
contain systemic risk should be at the minimum level that is required for efficiency.
Question 6
Elaborate on a central bank’s role in the maintenance and improvement of a country’s payment
system.
The role of the central bank involves the clearing of payment instruments, provision of an
adequate supply of currency and the preservations of confidence in the value of the
currency.
Question 7
Privatisation of government accounts holds several advantages to government and the economic
system. List these advantages and explain how they are brought about.
Simplification of money market management: The flow of funds between the private
sector and the SARB historically caused considerable disruption to the money market.
Money market management is simplified when a portion of government funds is
deposited with commercial banks as the flow of funds between the private sector and
the SARB is reduced.
Reduction in the net financing cost of the government: Government deposits with the
commercial banks reduce the flow of funds between the private sector and the SARB,
contributing not only to a simplification of money market management but also to
better cash flow management within the government sector. This in turn reduces the
net financing cost of the government.
Government earns interest on deposits of commercial banks: The government is able
to earn interest on money deposited with commercial banks as deposits with the SARB
do not earn any interest.
Question 9
Describe the main reasons why central banks hold foreign exchange reserves.
This allows the central bank to intervene in the foreign exchange market, i.e. to
influence the value of the currency by trading in foreign exchange.
Central banks hold foreign exchange reserves in order to effect transactions.
Foreign exchange reserves serve as a buffer against international financial shocks or
crises.
Central banks hold foreign exchange reserves to diversify their portfolio of assets.
Question 10
What is the secondary mandate of the SARB?
Financial Stability
Read the statements below and indicate whether they are true or false.
Question 1
The SARB’s core operations are implemented by the branches of the SARB.
False – the SARB’s core operations are implemented by six line departments.
Question 2
In order to drain liquidity from the market, the SARB buys dollars from its counterparties on a spot
basis while simultaneously selling these dollars on a forward basis.
False – the SARB sells dollars to its counterparties on a spot basis while simultaneously
buying these dollars back on a forward basis should it want to drain liquidity.
Question 3
An important function of the Bank Supervision Department of the SARB is the licensing of banks.
True
Question 4
The CPD accepts long-term deposits from public sector entities.
Question 5
The main function of the SARB branches is to ensure that there is an adequate supply of new
notes and coins to meet the demand by the banks and to replace unfit notes.
True
Question 1
The level of the inflation target in South Africa is announced by the South African Reserve Bank
Governor/Minister of Finance.
Minister of Finance
Question 2
Clearing (commercial) banks need to comply with the cash reserve requirement on a daily/
average basis.
Average
Question 3
The interest of reverse repos issued by the SARB is capped at the level of the prevailing Treasury
bill/repo rate.
Repo rate
Question 4
The South African Multiple Option Settlement (SAMOS) system settles transaction on a pre-
funded/payment-versus-payment basis.
Pre-funded
Question 5
The inflation target is a range/point target
Range 3-6%