INSTITUTE OF BANKERS IN MALAWI

DIPLOMA IN BANKING EXAMINATION

SUBJECT: LAW RELATING TO BANKING (IOBM – D216)

Date: Tuesday, 10th November 2009

Time Allocated: 3 hours (08:00 – 11:00 am)

INSTRUCTIONS TO CANDIDATES

1 This paper consists of TWO Sections, A and B.

2 Section A consists of 4 questions, each question carries 15 marks.

Answer ALL questions.

3 Section B consists of 4 questions, each question carries 20 marks. Answer

ANY TWO questions.

4 You will be allowed 10 minutes to go through the paper before the start of the
examination, when you may write on this paper but not in the answer book.

5 Begin each answer on a new page.

6 Please write your examination number on each answer book used.

7 DO NOT open this question paper until instructed to do so.

SECTION A (60 MARKS)

Answer ALL questions from this section.

QUESTION 1

(a) Letters of credit are primarily used in international trade transactions. Identify
five main parties to a letter of credit. Motivate your answer with an
illustration. (10 marks)

(b) There are two fundamental principles governing letters of credit, namely ;

(i) The doctrine of strict compliance.

(ii) The principle of autonomy of the letters of credit.

What do you understand by the doctrine of strict compliance? (5

marks) (Total 15
marks)

QUESTION 2

(a) (i) What are the two types of crossing on a cheque? (2 marks)

(ii) The Managing Director of ABCD Bank has requested you to address
its newly recruited bank tellers on the significance of a crossing on a
cheque. Prepare a short brief for your presentation. (5 marks)

(b) What are the six salient features of a bill of exchange? (6 marks)

(c) The law relating to negotiable instruments is basically the law of the
commercial world and this law came into being to facilitate the activities in
trade and commerce.

Apart from bills of exchange, name any two kinds of negotiable instruments?
(2 marks)
(Total 15 marks)

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QUESTION 3

“The bank owes to the customer a duty to keep in confidence all which it knows
about the customer and his affairs, both in connection with his account and
otherwise.”

What are the exceptions to the bank’s duty of confidentiality? (15 marks)
(Total 15 marks)

QUESTION 4

(a) The Money Laundering Proceeds of Serious Crime and Terrorist Financial Act
of 2006 was enacted to, among other things, to require financial institutions
take prudential measures to help combat terrorist financing and money
laundering.

What do you understand by money laundering? (5 marks)

(b) In a bid to rein in on money laundering, the law has imposed some duties on
banks and financial institutions.

List any five statutory duties that are imposed on banks and financial
institutions to curb money laundering? (10 marks)

(Total 15 marks)

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SECTION B (40 Marks)

Answer ANY TWO questions from this section.

QUESTION 5

The Bretton Woods Economic conference of 1944 led to the formation of the
International Monetary Fund and the World Bank. The functions of the International
Monetary Fund are different from those of the World Bank. Recently, the global
community has experienced an overlap of their functions. Discuss. (20 marks)
(Total 20 marks)

QUESTION 6

Sections 27 and 29 of the Bills of Exchange Act (Cap. 48:02) of the Laws of Malawi
recognise the terms ‘a holder for value’ and ‘a holder in due course’.
Explain with the aid of examples the key features and differences between these
terms.
(20 marks)
(Total 20 marks)
QUESTION 7

(a) Mrs Dzilimbire, a business woman in Blantyre had a current account at

Newline Bank and she had a cheque book issued to her by Newline Bank. Mr.
Mambala, by means of fraud, obtained from Mrs. Dzilimbire a cheque crossed
‘not negotiable’ and got it cashed at QuickBank. Mrs Dzilimbire wants to sue
QuickBank for conversion. Advise QuickBank on the question of liability.
(12 marks)

(b) Generally, it is the duty of the banker to pay the cheque, provided he has in
his hands sufficient funds of the drawer and the funds are properly applicable
to such payment. However, a banker will be justified or bound to dishonour a
cheque in certain cases. List four instances in which a banker would be
justified or be bound to dishonour a cheque. (8 marks)
(Total 20 marks)

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QUESTION 8

(a) Mr. Ndale, Mrs. Zasinthata and Mrs. Kumalawi are partners in a firm which
has an overdraft at your bank. Mr. Ndale is about to retire from the
partnership. Discuss whether Mr. Ndale will continue to be liable for the
overdraft and what action, if any, should the bank take. (10 marks)

(b) Distinguish between the bankruptcy of an individual partner and the

bankruptcy of a partnership and the effect they have on the legal relationship
which the bank has with the partnership. (10 marks)
(Total 20 marks)

(a) th

END OF THE EXAMINATION PAPER

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