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Paper-101
Monetary and Financial Systems
(English Version)

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Digest Page No. 1

 Monetary and Financial System (MAFS)
Suggestions for 99th Banking Professional Exam
Module-A Money and Monetary System ...........................................................................4
Q-1) What is money? ***...................................................................................................................4
Q-2) Why is the unit-of-account function of money crucial to operation of an economy? M1:Q-1***4
Q-3) Explain how money functions as a standard of deferred payments. IBB Module-1: Q-2**......4
Q-4) Does the money allow people to transfer purchasing power from the present to future? 97th*** 5
Q-5) Rank the following financial assets in terms of their liquidity: coins and paper currency,
common stock, demand deposits, long-term government bonds, long term corporate bonds, saving
deposits at deposit institutions, Treasury bills. Explain your ranking. IBB Module-1: Q-3***.........5
Or Which and why financial asset is most liquid among coins and paper currency, common stock,
demand deposits, long-term government bonds, long term corporate bonds, saving deposits at deposit
institutions, Treasury bills. **.............................................................................................................5
Q-6) Define Demand for Money. Why general people will have demand for money? Why do people
hold money? (97th exam) IBB Module-1: Q-9**................................................................................6
Q-7) How money supply is measured? (96th exam)*** ....................................................................6
Q-8) What a narrow money (M1) is different from broad money (M2). 97th exam** ......................7
Q-9) Why interbank deposit is not included in the definition of money supply?IBB M-1:Q-14*** .8
Or Does money supply include interbank deposits? Why? 97th exam................................................8
Q-10) Can Monetary authority/Central bank directly control money supply? Explain. (96th)*** .....8
Q-11) What constitutes the monetary base? How does central bank control monetary base? 96th*** .9
Q-12) How banks can create money? To what extent a single bank can create money? A banking
system as a whole? IBB Module-1: Q-15** .....................................................................................10
Module-B: Payment System ..............................................................................................11
Q-1) Define Payment System. Describes payment options available in Bangladesh.*** ................11
Q-2) Define electronic fund transfer. What are the modes of Electronic Fund Transfer?*** ..........11
Q-3) State the advantages and disadvantages of card payment systems. IBB Module-2: Q-4*** ...12
Q-4) Which payment method, i.e. cash, debit/credit cards, MFS, EFT, QR, is the most dominating
and which one is the fastest growing in Bangladesh? Explain briefly. (97th exam)*** ..................12
Q-5) Describes the evolution and Growth of Bangladesh Payment System. IBB Module-2: ..........13
Module-C: Financial System.............................................................................................13
Q-1) Why indirect finance prefers to direct finance for lending or borrowing funds? IBB M3:Q-5***13
Q-2) In a formal financial system, who does practice direct mode of finance? Which one is riskier
mode of finance from surplus economic unit point of view and why? IBB Module-3: Q-3*** ......14
Q-3) Define Financial System in Bangladesh. What are its constituents? (96 th exam)*** ..............15
Q-4) How come the payment role of financial system can contribute towards economic development
of a country? IBB Module-3: Q-13**...............................................................................................15
Q-5) How do you define financial instruments? Classify financial instruments. M3:Q-8*** .........16
Q-6) What are the main challenges facing the global financial system today? What steps can
governments and financial institutions take to address these challenges.***...................................16
Module-D: Financial Institutions .....................................................................................17
Q-1) What is the precondition for successful Intermediation activities of banking FIs?M4:Q2*** 17
Q-2) Describe the functions of Banking Financial Institutions (BFIs) and NBFIs. (96th exam)** ..18
Q-3) How BFIs and NBFIs works as financial intermediaries? (96th exam)*** ..............................19
Q-4) Show how come a bank balance between its liquidity and medium-term lending according to
Shiftability Theory. IBB Module-4: Q-14** ....................................................................................20

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 Monetary and Financial System (MAFS)
Q-5) What are the approaches used by Financial Institutions for fund management?*** ...............21
Q-6) What are the components of CAMELS? How does CAMELS rating help to improve overall
performance of a bank? Discuss. (97th exam)*** .............................................................................22
Q-7) Discuss the contributions of non-bank financial institutions in the economic development of a
developing country like Bangladesh. **...........................................................................................23
Q-8) Explain the factors which are reshaping commercial banking all over the world now-a-days.***24
Q-9) What is online banking? Can online banking replace the normal banking system?** ............24
Q-10) What do you mean by Globalization of Banking? Explain the factors that may cause
globalization of banking. Does globalization increase the risk of failure of bank? IBB M4:Q-20***25
Module-E: Financial Markets...........................................................................................25
Q-1) What is Financial Market? Different types of financial market existing in Bangladesh.***...25
Q-2) What are the main purposes of Secondary financial markets? IBB Module-3: Q-9*** ..........26
Q-3) Describes about Money market instruments.*** .....................................................................26
Q-4) Which of the money market securities is the most liquid & considered most risk-free? Why?*** 27
Q-5) Define 'real' and 'nominal" interest rate in brief. Is real interest rate can be negative at the time
of stagflation? Explain with example. (97th exam)** .......................................................................27
Q-6) Using supply and demand framework for bonds, show why interest rates are procyclical. Show
the effect on interest rates when the risk of loss of bond rise under the framework. 96th,M5:Q-7*** 28
Q-7) What steps do you suggest to develop securities market in developing countries like BD?** 28
Q-8) What are the features and Legal framework of deposit insurance scheme to protect depositors'
interest of banks? ** .........................................................................................................................29
Q-9) Describes about International Financial Market. What are segments of it?***.......................29
Q-10) What is the role of the foreign exchange market in the global financial market? (96th)*** ..30
Q-11) Define 'balance on current a/c' and 'basic balance' in international balance of payments. 96th** .31
Q-12) What is Foreign Direct Investment? How FDI can help to boost up the economy of BD? 97th*** 31
Q-13) What are the components of Balance of Payment (BOP)? A country's BOP is always balanced,
Discuss. (97th exam)***....................................................................................................................32
Module-F: Islamic Financial System................................................................................33
Q-1) What are the basic principles of Islamic economic system? IBB Module-6 Q-1***...............33
Q-2) What do you mean by Riba? How is it interpreted in Islam and what are the significant
implications of prohibiting Riba in Islam? IBB Module-6 Q-2**....................................................34
Q-3) What is the role of Zakat in establishing equality in society? IBB Module-6 Q-4*** ............34
Q-4) What do you mean by Muamalat? What role does it play in Islam? IBB Module-6 Q-9** ....35
Q-5) Give the reasons Why Islamic banking has become popular in the world?*** .......................35
Q-6) What are the sources of Shariah law and how are they used in Islamic jurisprudence?** ......36
Q-7) Which Shariah Principles are used by Islamic Banks for mobilization & deployment of fund?***37
Q-8) What do you know about shariah governance in Islamic financial institution? Outline the key
players and their role in shariah governance framework. (96th exam)**..........................................37
Module-G: Regulatory Framework for Financial, Monetary and Payment System...38
Q-1) Do you think that operational independence of central bank is more important than institutional
independence? Give your arguments. (97th exam)***......................................................................38
Q-2) Why Central Bank is termed as the banker to the government? Explain the statement in the
context of Bangladesh. IBB Module-7 Q-3** ..................................................................................39
Q-3) Write two ways how B. Bank can help the government in financing the budget deficit. *** .39
Q-4) What is financial stability? How central bank as Lender of Last Resort (LOLR) to maintain
financial stability? (96th & 97th exam)***.........................................................................................40

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 Monetary and Financial System (MAFS)
Q-5) Describe the functions and responsibilities of BFIU.**...........................................................40
Q-6) Securities and Exchange Commission (SEC) acts as the regulator of Capital Market
Intermediaries and narrate its functions.***.....................................................................................41
Short Notes..........................................................................................................................42
Q-1) Monetary Policy Statement (MPS)***.....................................................................................42
Q-2) Central Bank Autonomy **......................................................................................................43
Q-3) Multiple Deposit Creation. IBB Module-4: Q-24*** ..............................................................43
Q-4) Repo and Reverse Repo (97th exam) ** ...................................................................................43
Q-5) Convertible of Currency ***....................................................................................................44
Q-6) Hyper Inflation. *** .................................................................................................................44
Q-7) The ratio between M1 and M2. *** .........................................................................................44
Q-8) Bank for International Settlements (BIS). **...........................................................................45
Q-9) Inclusive banking. IBB Module-3: Q-23***............................................................................45
Q-10) NPSB. IBB Module-2: Q-6** ................................................................................................45
Q-11) POS. IBB Module-2: Q-6**...................................................................................................46
Q-12) CRR and SLR (97th exam)*** ...............................................................................................46
Q-13) HTM and HFT Securities; (97th exam)***.............................................................................47
Q-14) Regulatory forbearance and Moral Suasion; (97th exam)***.................................................47
Mathematics Problem........................................................................................................48
Q-1) From the following list of items, indicate if they are in M1, M2 or neither: (97 th exam)*** ..48
Q-2) If Narrow Money is 25% of Broad Money, which was around Tk. 440,528 crore as on June,
2011, then what was the amount of time deposits as on the same date? If demand deposit was almost
50% of M1, then what was the amount of currency outside banks? (97th exam) IBB M1:Q-20*** 49
Q-3) The price of 182-day commercial paper is $7,840. If the annualized yield is 4.04%, what will
the paper pay at maturity? IBB Module-5 Math-8**........................................................................49
Q-4) The annualized yield is 3% for 91-day commercial paper and 3.5% for 182-days commercial
paper. What is the expected 91-day commercial paper rate 91 days from now?***........................50
Q-5) A ten-year Tk.1000 par value bond with a 5% annual coupon is trading to yield 6%. What is
the current yield? IBB Module-5 Q-16***.......................................................................................50
Q-6) The yield on a corporate bond is 10%, and it is currently selling at par. The marginal tax rate is 20%.
A par value municipal bond with a coupon rate of 8.5% is available. Which security is a better buy?***52
Q-7) How much would you pay for a Treasury bill that matures in one year and pay Tk.10,000 if you
require a 3% return? IBB Module-5 Math-10**...............................................................................52
Q-8) From the following information compute the financial account balance: (97 th exam)***.......53
Differences ..........................................................................................................................53
Q-1) Describes the differences between legal tender & non-legal tender money or credit money. 53
Q-2) What are the differences between Transaction Motive and Precautionary Motive of money?** 54
Q-3) Compare and contrast M1 and M2 money supply. (96th exam)** ...........................................54
Q-4) Difference between bearer cheque and Crossed Cheque.*** ..................................................55
Q-5) Differ between "demand-following" and "Supply-lending" financial development. M3:Q-14** 56
Q-6) Differentiate between Money and Financial Instrument. IBB Module-3: Q-10*** ................56
Q-7) Differentiate between Money and Credit. IBB Module-3: Q-10*** .......................................57
Q-8) Differentiate between Money and financial Instrument. IBB Module-3: Q-10*** .................57
Q-9) Discuss similarities and dissimilarities Sukuk vs. Bonds.***..................................................57
th
Q- exam)*** .........................57

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 Monetary and Financial System (MAFS)
Module-A Money and Monetary System
Q-1) What is money? ***
In short sense, Money is anything that serves as a medium of exchange. In board sense Money
is a medium of exchange that is centralized, generally accepted, recognized, and facilitates
transactions of goods and services and settlement of all debt.
In econo
and services and for paying bad debts.
In Wikipedia, Money is any object that is generally accepted as payment for goods and services
and repayment of debts in a given country or socio-economic context.
Finally, money can be anything that can serve as a
1. Store of value, which means people can save it and use it later smoothing their purchases
over time;
2. Unit of account, that is, provide a common base for prices; or
3. Medium of exchange, something that people can use to buy and sell from one another.
Q-2) Why is the unit-of-account function of money crucial to the operation of an economy?
IBB Module-1: Q-1***
Money acts as a universal measure to compare the value of various goods and services,
simplifying their comparison through a common unit known as price. This function is essential
for economic operations for several reasons:
1. Standardized Measurement: Money provides a standardized way to price and value goods,
services, assets, and debts, aiding in efficient decision-making and resource allocation.
2. Price Determination: Money helps establish and communicate prices, expressing the
relative value of goods and services, and providing essential information for market
transactions.
3. Contracts and Obligations -of-account function is crucial for defining and
fulfilling contracts, debts, loans, and salaries, ensuring clarity and fairness in financial
agreements.
4. Financial Reporting and Analysis: Money is fundamental to financial reporting, allowing
businesses, governments, and individuals to measure and report financial activities,
facilitating economic analysis and investment decisions.
5. Economic Calculation: Money enables economic calculation by allowing comparisons
between production costs and expected revenues, helping businesses determine profitability
and individuals assess consumption and savings choices.
Overall, the unit-of-account function of money is vital for economic transactions, price
determination, contract enforcement, financial reporting, and economic calculation, ensuring
efficient economic coordination and market functioning.
Q-3) Explain how money functions as a standard of deferred payments. IBB Module-1: Q-
2**
Deferred payments refer those payments which are made in future. Money has made deferred
payment easier. Money functions as a standard of deferred payments by providing a medium
through which obligations or debts can be settled over time. How money serves this purpose are
explained bellow:

Digest Page No. 5

 Monetary and Financial System (MAFS)
1. Promissory Agreements: Economic transactions often involve agreements where one party
owes a debt to another, such as loans or credit purchases. These agreements outline the
repayment terms, including amount, interest rate, and schedule.
2. Future Payment Terms: Money allows parties to agree on a specific amount to be paid in
the future, serving as a measure of value for the obligation. For example, a borrower might
agree to repay a $10,000 loan within a set timeframe.
3. Consistency and Stability: atively stable over time, making it a
reliable standard for deferred payments. This predictability reduces uncertainties in deferred
payment arrangements.
4. Medium of Exchange:
any time during the agreed period, as long as both parties adhere to the initial terms.
5. Legal Enforceability: The legal system ensures that contracts specifying deferred payment
terms are enforceable, providing security and assurance that obligations will be honored as
agreed.
Overall, money as a standard of deferred payments helps manage financial obligations over time,
facilitating economic activities like borrowing, lending, and credit purchases.
Q-4) Does the money allow people to transfer purchasing power from the present to the
future? (97th exam)***
Money acts as a store of value. It means people can store their wealth in the form of money.
Money is the most liquid form of wealth and it can be stored without loss in value. Money
enables people to save a part of their current income and store it for future use. Money functions
as a store of value by allowing individuals and entities to hold and preserve wealth over time.
Money acts as a store of value in followings ways:
1. Wealth Preservation: Money retains its purchasing power and can be stored for future use.
By holding money, individuals can preserve the value of their wealth and have the ability to
access goods, services, and investments when needed.
2. Medium of Exchange: Money's liquidity and wide acceptance make it a convenient medium
of exchange. Individuals can easily convert assets or goods into money and vice versa. This
facilitates the exchange of value, enabling people to hold and store wealth in a highly liquid
and easily transferable form.
3. Stability and Predictability: While the value of money can be influenced by factors such
as inflation, deflation, or changes in the economy, it generally maintains a relatively stable
and predictable value compared to other assets. This stability allows individuals to plan for
the future and rely on money as a reliable store of value.
Q-5) Rank the following financial assets in terms of their liquidity: coins and paper
currency, common stock, demand deposits, long-term government bonds, long term
corporate bonds, saving deposits at deposit institutions, Treasury bills. Explain your
ranking. IBB Module-1: Q-3***
Or Which and why financial asset is most liquid among coins and paper currency, common
stock, demand deposits, long-term government bonds, long term corporate bonds, saving
deposits at deposit institutions, Treasury bills. **
A ranking of the given financial assets in terms of their liquidity, from most liquid to least liquid
are as follows:
1. Coins and paper currency: These are the most liquid assets as they can be used
immediately for transactions without any conversion.

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 Monetary and Financial System (MAFS)
2. Demand deposits: These are funds in bank accounts that can be accessed on demand, such
as checking accounts. They can be quickly transferred or withdrawn as cash, making them
very liquid.
3. Treasury bills: These are short-term government securities that mature in a year or less.
They are highly liquid because they have a very active secondary market, meaning they can
be quickly sold for cash.
4. Saving deposits at deposit institutions: These include savings accounts and money market
accounts. While not as instantly accessible as demand deposits, they can still be converted
to cash relatively easily, though there may be some restrictions or delays.
5. Common stock: While stocks are traded on exchanges and can usually be sold quickly, their
liquidity can vary based on market conditions and the specific stock. There may also be price
volatility, which adds some uncertainty to their liquidity.
6. Long-term government bonds: These are government securities with longer maturities.
They are less liquid than Treasury bills because their longer duration makes them more
sensitive to interest rate changes. However, they still have a relatively active secondary
market.
7. Long-term corporate bonds: These are bonds issued by corporations with longer
maturities. They are less liquid than government bonds due to higher credit risk and often
less active secondary markets, making them the least liquid among the listed assets.
Q-6) Define Demand for Money. Why general people will have demand for money? Why
do people hold money? (97th exam) IBB Module-1: Q-9**
Demand for Money: Individuals and businesses desire to hold money in liquid forms like cash
or bank deposits to make purchases or payments. This demand is influenced by factors such as
interest rates, inflation, income levels, and economic conditions.
General people demand for money due to below reasons:
1. Transactions: The primary reason for demanding money is to use it for transactions. More
transactions increase the demand for money, such as buying a car or paying employees.
2. Store of Value: People also demand money as a store of value, holding it in bank deposits
or interest-bearing assets to preserve purchasing power and earn interest.
3. Interest Rates: High interest rates lead people to hold less money and more interest-bearing
assets, while low interest rates result in holding more money due to lower opportunity costs.
4. Economic Role: The demand for money affects interest rates, money supply, and economic
activity, playing a crucial role in the economy.
Motives for Holding Money: There are three main motives for holding money:
1. Transaction Motive: People hold money to bridge the gap between income receipt and
expenditure, ensuring they can meet their ongoing expenses.
2. Precautionary Motive: People hold cash to cover unexpected events, with the amount
depending on individual circumstances and income levels.
3. Speculative Motive: People hold cash instead of bonds based on expectations of future
interest rate changes, with higher interest rates reducing the demand for money and lower
rates increasing it.
Q-7) How money supply is measured? (96th exam)***
Money Supply Measurement: Economists and policymakers measure the total amount of
monetary assets in an economy, categorizing them into aggregates like M0, M1, M2, and M3
based on liquidity and accessibility.

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 Monetary and Financial System (MAFS)
1. M0 or Base Money: The most liquid form of money, including physical currency and bank
reserves at the central bank. Formula: M0 = Currency notes + coins + bank reserves.
2. M1 or Narrow Money: Includes M0 plus demand deposits and other checkable deposits,
representing money readily available for transactions. Formula: M1 = M0 + demand
deposits.
3. M2 or Broad Money: Encompasses M1 and other liquid forms of money like savings
deposits, time deposits, and money market funds. Formula: M2 = M1 + Time deposits +
Savings deposits + Marketable securities.
4. Central Bank Monitoring: Central banks use these measures to monitor the money supply,
influencing economic activity, inflation, and monetary policy. The choice of measure

Q-8) What a narrow money (M1) is different from broad money (M2). 97th exam**
Measures of money supply refer to the various ways of measuring the amount of money in the
economy. Bellow two types are primary ways of measuring the money supply:
1. Narrow money
2. Broad money
Narrow money: In the macro economy of Bangladesh, narrow money refers to the M1 money
supply, which includes physical currency, coins, demand deposits (checking accounts), and other
checkable deposits held by households and businesses. Narrow money can be calculated using
the following formula:
M1 = M0 + demand deposits
Or, M1 = Currency in Circulation + Demand Deposits + Other Checkable Deposits
Where:
1. Currency in Circulation: This refers to the total amount of physical currency and coins that
are in circulation within an economy. It includes notes and coins that are held by the public
as well as cash reserves held by banks.
2. Demand Deposits: This refers to deposits that can be withdrawn by depositors on demand,
such as checking accounts. These deposits are considered highly liquid and are typically
used for transactions.
3. Other Checkable Deposits: This includes deposits that are not demand deposits but can be
used for transactions, such as savings accounts that allow for check-writing or electronic
transfers.
To determine M1, sum the total currency in circulation, demand deposits, and other checkable
deposits. This measures the most liquid forms of money available for transactions.
Narrow money indicates economic liquidity and is crucial for monetary policy in Bangladesh.
The central bank uses it to manage the money supply and maintain price stability.
Policymakers monitor narrow money levels as it affects inflation, economic growth, and interest
rates. Rapid growth can lead to inflation, while low levels can restrict economic activity and
credit availability.
h and
the overall economic state in Bangladesh.
Broad money: In the macro economy of Bangladesh, broad money refers to the M2 money
supply, which includes all of the components of M1 (physical currency, coins, demand deposits,
and other checkable deposits), as well as savings deposits, time deposits (such as certificates of
deposit), and money market funds.
Broad money can be calculated using the following formula:

Digest Page No. 8

 Monetary and Financial System (MAFS)
M2 = M1 + Savings Deposits + Time Deposits + Money Market Funds
Where:
1. M1: This includes physical currency, coins, demand deposits (checking accounts), and other
checkable deposits.
2. Savings Deposits: This includes deposits that are not immediately available for transactions,
such as savings accounts. These deposits earn interest and are typically used for longer-term
savings goals.
3. Time Deposits: This includes deposits that are held for a fixed period of time, such as
certificates of deposit (CDs). These deposits also earn interest and are less liquid than
demand deposits.
4. Money Market Funds: This includes mutual funds that invest in short-term, low-risk
securities such as government bonds and commercial paper.
It's important to note that different countries may use slightly different definitions of M2 and
may use different criteria for what is included in this measure. However, the basic formula for
calculating broad money remains the same.
Q-9) Why interbank deposit is not included in the definition of money supply?IBB Module-
1: Q-14***
Or Does money supply include interbank deposits? Why? 97th exam
Interbank deposits are typically excluded from the definition of the money supply for several
reasons:
1. Nature of Interbank Deposits: These are funds that banks hold with each other, acting as
liabilities between banks and not directly used for transactions in the broader economy.
2. Double Counting: Including interbank deposits in the money supply could result in
counting the same funds multiple times, as they move between banks, leading to
inaccuracies.
3. Not Directly Accessible to the Public: Interbank deposits are used by banks for liquidity
management and regulatory compliance, not for public transactions. Money supply measures
focus on liquid assets available to the public.
4. Focus on Broad Money: Traditional money supply measures like M1 and M2 aim to capture
the most liquid forms of money for transactions. Including interbank deposits would blur
this focus, as they are primarily for bank financial management.
In summary, interbank deposits are excluded from money supply definitions to avoid distortions
and double counting, ensuring the focus remains on the most liquid and widely used forms of
money in the economy..
Q-10) Can Monetary authority or Central bank directly control money supply? Explain.
(96th exam)***
The money supply refers to the total amount of money available in an economy at a given point
in time. The determination of the money supply is a complex process influenced by various
factors and controlled by central banks in most countries. The specifics of the money supply
determination may vary depending on the country and the monetary system in place. A general
overview of how the money supply is determined in a typical central bank-controlled system are
discussed below:
Quantitative or General Methods:

Digest Page No. 9

 -

Paper-102
Governance in Financial Institutions
(English Version)

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Digest Page No. 60

 Governance in Financial Institutions (Page-1)
Syllabus-2023
Paper-2: Governance in Financial Institutions (GFI) Full Marks: 100

Module-A: Concept and pre-requisites

Basic Concept and Historical Perspective of Governance - Need & Importance of Corporate
Governance. Benefit of Good Governance in Banks. BASEL s Principles on Corporate Governance
for Banks. Vision, Mission, Purpose, Brand Promise, Code of Conduct.
Module-B: Board and its Responsibilities
Overall responsibility of Board, Board Members, Independent Members, Various Committees,
Setting strategic objectives, governance framework and corporate culture, BB s Guidelines for
Measuring Board Performance, Board Dissolve and Appointment of Observer
Module-C: CEO and Senior Management
Tone from the top; Composition and qualification of CEO and other senior managers; Senior
Management Committees; Business strategy; Management Culture; Organization Culture; Changing
CEO and Senior Management
Module-D: Capital, Liquidity and Assets
Capital Adequacy, Liquidity Profile, Asset Composition, RWA, Liability and Asset Drives,
Managing Problem Assets
Module-E: Risk Management and Controls
ERMF, Risk Scanning and emerging Risks, Risk Appetite, Risk Culture, Managing Material Risks,
Appropriate implementation of 03 (three) lines of defense, Strength and Independent functioning of
2nd line functions and Internal Audit, Regulatory compliance,
Module-F: Subsidiary and other business governance
Brokerage, Merchant Banking, Custodial Services, OBU, Islamic Window, MFS, Agent Banking.
Module-G: Stakeholder Governance
Relationship with Regulators, Local Government Agencies; Regulations on Corporate
Governance; Relationship with Shareholders; Relationship with Competitors and Market Conduct;
Relationship with Customer, Complaint Management; Relationship with Media; Relationship with
Civil Society; Relationship with Community and CSR. Disclosure and Transparency.
Module-H: Future Outlook of the Organization
Market Positioning, New Business initiatives, Digital Agenda, Systems and infrastructure
capabilities, People Plan, Succession Plan, Recruiting and upscaling employees of future.
References:

2. Corporate Governance: Robert A. G. Monks, Nell Minow, Malden, Mass. : Blackwell Pub., 2004.
3. Robert Ian Tricker: Corporate Governance 4e: Principles, Policies, and Practices., Oxford
University Press, 2019
4. Zabihollah Rezaee : Criminal and Civil Investigation Handbook, Wiley
5. Carol Padgett: Corporate Governance: Theory and Practice, Springer Publications
6. Cornelis A De Kluyer: A Primer on Corporate Governance, Business Expert Press, 2013
7. Chris A. Mallin: A Primer on Corporate Governance, Published by OUP Oxford (2012)
8. Hester PaanakkerAdam MastersLeo Huberts, Quality of Governance
9. Mark Bevir, Governance: A Very Short Introduction Zabihollah Rezaee, Corporate Governance
and Ethics

Digest Page No. 61

 Governance in Financial Institutions (Page-2)

Suggestion for 99th Banking Professional Eaxam

Module-A: Concept and pre-requisites..............................................................................5

Module-B: Board and its Responsibilities .........................................................................8

Module C: CEO and Senior Management.......................................................................12

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 Governance in Financial Institutions (Page-3)

Module-D: Capital, Liquidity and Assets ........................................................................19

Module-E: Risk Management and Controls....................................................................23

Module-F: Subsidiary and other business governance...................................................31

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 Governance in Financial Institutions (Page-4)

Module-G: Stakeholder Governance ...............................................................................34

Module-H: Future Outlook of the Organization.............................................................39

Short Notes..........................................................................................................................40

Short Questions: Answer in one sentence ........................................................................43

Previous Exam Questions ..................................................................................................44

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 Governance in Financial Institutions (Page-5)

Module-A: Concept and pre-requisites

Syllabus: Basic Concept and Historical Perspective of Governance - Need & Importance of
Corporate Governance. Benefit of Good Governance in Banks. BASEL s Principles on Corporate
Governance for Banks. Vision, Mission, Purpose, Brand Promise, Code of Conduct,

What do you mean by corporate governance? [IBB SMQ, BPE-97th]***

Corporate governance refers to the set of processes, principles, and values that guide and control how
a company is managed and operated. It is the system by which companies are directed and controlled,
and encompasses the relationships between a company s management, its board of directors, its
shareholders, and other stakeholders. Here are some definitions of corporate governance from
different writers:
According to OECD, "Corporate governance refers to the processes and structures by which the
business and affairs of a corporation are directed and managed."
According to Sir Adrian Cadbury, "Corporate governance is the framework of rules, relationships,
systems, and processes within and by which authority is exercised and controlled in corporations."

Briefly describe the corporate governance principles issued by Basel committee on banking
supervision. [BPE-96th] ***
The Basel Committee has formulated 13 principles for corporate governance in banks and financial
institutions to prevent failures due to weak governance:
1. : The board is responsible for approving and overseeing the

2. Board Qualifications and Composition: Board members must be qualified to oversee corporate
governance and exercise sound judgment.
3. : The board should establish governance structures and
periodically review them for effectiveness.
4. Senior Management
board-approved strategy and policies.
5. Governance of Group Structures: In gro

6. Risk Management Function: Banks must have an independent risk management function led by
a Chief Risk Officer (CRO) with access to the board.
7. Risk Identification, Monitoring, and Controlling: Risks should be identified and managed at

8. Risk Communication: Robust internal communication and reporting about risks are necessary
for effective governance.
9. Compliance: The board is responsible for overseeing compliance risk and establishing a
compliance function to manage it.
10. Internal Audit: The internal audit provides independent assurance to the board and supports
governance and bank soundness.
11. Compensation: Remuneration structures should promote sound corporate governance and risk
management.
12. Disclosure and Transparency
as shareholders and market participants.

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 Governance in Financial Institutions (Page-6)
13. Role of Supervisors: Supervisors should guide, evaluate, and ensure corporate governance
practices in banks, taking corrective actions when necessary.

What do we understand by vision and mission statement? [IBB SMQ] **

A vision statement is a concise and inspirational declaration that describes an organization or
individual's desired future. It outlines long-term goals and aspirations, serving as a guiding principle
for decision-making and strategy. A vision statement should be clear, memorable, reflect core values,
and inspire stakeholders. For example, a bank's vision might be "to be a leading bank in supporting
small businesses and financial inclusion."
A mission statement
customers, and values. It provides a sense of direction and helps guide strategies. A mission statement
should be concise, memorable, and reflect the organi

What is the importance/purpose of mission statement? [IBB SMQ] **

A well-crafted mission statement can provide the following benefits:
1. Clarity and focus: A mission statement helps to define the organization s purpose and priorities,
providing a clear sense of direction and focus for all activities and initiatives.
2. Communication: A mission statement communicates the organization s purpose, values, and
goals to stakeholders, including employees, customers, investors, and partners.
3. Differentiation: A mission statement can help to differentiate the organization from its
competitors by highlighting its unique strengths, values, and offerings.
4. Motivation: A well-crafted mission statement can inspire and motivate employees, customers,
and other stakeholders, creating a sense of purpose and commitment to the organization s goals.
5. Accountability: A mission statement provides a standard against which the organization s
performance can be measured and evaluated, helping to ensure accountability and alignment with its
core purpose and values.
6. Direction: A mission statement provides direction by clearly defining the goals, values, and scope of
a new venture, guiding its implementation. It helps answer key questions like how the business wants to
be perceived, which values to emphasize, how to stand out from competitors, and what long-term goals
to aim for, shaping the strategic approach and future path.
7. Trust: A mission statement builds trust by providing a clear and trustworthy path, making it easier
to attract employees, target audiences, and investors.
8. Uniqueness: Crafting a mission statement forces deep thinking about the brand, revealing insights
that help differentiate the company from competitors.
9. Motivation: A clear mission and vision motivate the organization, reducing wastage and driving
growth, which attracts investors and consumers to the brand.
10. Support/Building Community: A mission statement helps build a community around the brand
by championing a cause, appealing to emotions, or solving problems, gaining support from investors,
consumers, and the public.

What do you understand by brand promise? ***

A brand promise is a statement or commitment made by a company or organization to its customers
that articulates what they can expect from the brand s products or services. It is a pledge to deliver a
certain level of quality, value, or experience to customers consistently. A well-crafted brand promise
can differentiate a brand from its competitors, build trust and loyalty with customers, and create a

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positive brand reputation. A brand promise should be simple, memorable, and reflective of the
brand s values and personality. It should also be authentic and achievable, based on the brand s
capabilities and resources. A brand promise can serve as a guide for the brand s communication and
marketing efforts and should be reinforced in all customer interactions and touchpoints.

What is Code of conduct? [SN-97th] ***

A code of conduct (CoC) is a set of values, rules, standards, and principles outlining what employers
expect from staff within an organization. It typically outlines the values, beliefs, and standards of
behavior that are expected of employees or members, and provides guidance on how to act in various
situations. A well-crafted code of conduct can help to establish a positive organizational culture,
build trust and credibility with stakeholders, and promote compliance with legal and regulatory
requirements. It can also serve as a basis for performance evaluation and disciplinary action. A code
of conduct may cover a range of topics, including conflicts of interest, confidentiality, respect for
diversity, fairness and impartiality, and ethical decision-making. It should be easily accessible and
communicated to all relevant stakeholders, and reviewed periodically to ensure its continued
relevance and effectiveness.

What factors need to be considered for inclusion in Code of conduct? **

When developing a code of conduct, several factors need to be considered to ensure its effectiveness
and relevance. These factors include:
1. Purpose and scope: The code of conduct should clearly define its purpose, scope, and intended
audience. It should be aligned with the organization s values and goals and reflect its culture and
operating environment.
2. Legal and regulatory requirements: The code of conduct should comply with relevant laws,
regulations, and industry standards, and address any specific legal and compliance issues that are
relevant to the organization s operations.
3. Organizational culture and values: The code of conduct should reflect the organization s
culture, values, and expectations, and should be consistent with its brand and reputation.
4. Stakeholder engagement: The code of conduct should involve input and feedback from relevant
stakeholders, including employees, customers, suppliers, and partners.
5. Clarity and simplicity: The code of conduct should be written in clear and simple language that
is easily understood by all stakeholders. It should be concise, specific, and actionable, and avoid
vague or ambiguous language.
6. Accountability and enforcement: The code of conduct should establish clear accountability and
enforcement mechanisms, including reporting channels and consequences for non-compliance.
7. Values: Emphasize business ethics, social and environmental responsibility, employee rights, and
organizational commitment.
8. Employee Behavior: Detailed explanation of expected employee behavior and performance standards.
9. Internal Practices: Define clear rules for daily business operations, such as dress code, leave
policies, and job duties.
10. External Practices: Set expectations for interactions with external parties, covering
confidentiality, privacy, and conflicts of interest.

What are the principles of Bank of International Settlement on Code of conduct? [BPE-97th] **
Bank for International Settlements has formulated Special Staff Rule in their September 1997 (last
revised 1 June 2015) edition which is quoted below:

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