1. a) How do banks manage credit risk? 3 marks b) Suppose First National Bank has GHS 200 million of assets and GHS 20 million of equity capital. If First National has a 2% return on assets (ROA), what is its return on equity (ROE)? Suppose First National's equity capital declines to GHS 10 million, while its assets and ROA are unchanged. What is First National's ROE now? c. What are three reasons that employees may prefer to save through pensions provided by employers rather than through savings accounts?

d. A bank has the following balance sheet

Assets 100 Liabilities 80

Equity 20

i) Demonstrate what happens to the banks equity balance if market interest rate falls by 250 basis points