QUESTION 1

(a) Electronic banking can be defined as "the automated delivery of new and traditional banking products and services directly to customers through electronic, interactive communication channels."

(i) Give two examples of such banking products or services.

(ii) Give two examples of such electronic and interactive devices.

(b) Outline two risks associated with each of the following two primary types of internet websites:

(i) informational websites, and

(ii) transactional websites.

(c) E-banking systems can vary in their configuration depending on a number of factors. Financial institutions should choose their e-banking system configuration based on four factors. Outline these four factors.

(d) In addition to traditional banking products and services, financial institutions can provide a variety of services that have been designed or adapted to support e-commerce. Outline briefly four of the most common support services.

(e) Give two aspects of on-line loan origination that can significantly increase credit risk, if they are not properly managed.

(f) (i) Explain what you understand by the term access controls.

(ii) Outline briefly the importance of access controls.

(g) One of the steps of the risk management process is to manage and control risks. Explain how to ensure that this is done successfully

QUESTION 2

(a) The Mauritius Automated Clearing and Settlement System (MACSS) is the Mauritian Real-time Gross Settlement (RTGS) system.

(i) Define the term gross settlement, by making reference to the netting process.

(ii) The RTGS system is a type of payment system operating in real-time rather than batch processing mode. Give an example of batch processing

(b) With reference to the following two points:

(i) return of a settled payment sent in error, and

(ii) payments unable to be applied,
outline briefly the procedure put in place for MACSS participants to deal with incorrectly processed payments.

(c) Outline briefly the content requirements of specific MACSS payment messages.

(d) Explain how transactions in the queue (within the MACSS) are managed, by making clear reference to the following:

(i) the FIFO and queue priorities assigned by participants

(ii) cancelling payments from the queue,

(iii) queue treatment of account transfers, and

(iv) treatment of unsettled transactions at end-of-day

QUESTION 3

(a) The Automated Clearing House (ACH) is an electronic payment network used by individuals, businesses, financial institutions and government organisations.

(i) Outline briefly the different ACH participants.

(ii) Outline three benefits of the ACH to corporate originators.

(iii) Outline three benefits of the ACH to the receivers

(b) Fedwire, CHIPS and SWIFT are the three wire-transfer systems used in the United States. Outline the main differences among these three wire-transfer systems

(c) (i) Define the term Electronic Data Interchange (EDI)

(ii) Outline the essential elements of EDI

(ii) Give three benefits of EDI

QUESTION 4

(a) Define the following terms:

(i) Data confidentiality, and

(ii) Data integrity.

(b) Outline the importance of cryptography in e-banking.

(c) Outline the conditions under which each of the following cryptographic techniques is employed:

(i) secret-key cryptography,

(ii) public key cryptography, and

(iii) hash functions.

(d) Outline the importance of digital signatures.

(e) Explain why hash functions is also known as a one-way encryption technique.

(f) (i) Give the definition of a stock.

(ii) Explain briefly what causes the stock prices to change.

(g) Differentiate between the role of a specialist and that of a market maker.

(h) Give two hidden costs of online trading and the possible steps that can be taken to reduce these costs.

QUESTION 5

(a) Explain briefly how electronic money works.

(b) Give two benefits of e-money to each of the following:

(i) consumers and

(ii) business

(c) Outline three main barriers that may slow the widespread acceptance of electronic money if they are not overcome.

(d) Give two reasons why e-money systems will attract money launderers in the future

(e) Discuss the positive impacts of e-money and e-banking on banks, customers and merchants

(f) Explain briefly what can be done to fight the improper use of e-money