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Posted on Oct 03, 2024

1. With an initial deposit of GHS 10,000, and the current reserve requirement of 12% in Ghana (following the last MPC meeting), illustrate how much

1. With an initial deposit of GHS 10,000, and the current reserve requirement of 12% in Ghana (following the last MPC meeting), illustrate how much additional money can be created with 10 banks in the economy.

2. Best National Bank reports interest-sensitive assets of GHS 870 million and interest- sensitive liabilities of GHS 625 million during the coming month. Is the bank asset sensitive or liability sensitive? What is likely to happen to the banks net interest margin if interest rates rise? And what if they fall?

3. Despite Savings Bank has a cumulative gap for the coming year of +GHS 135 million, and interest rates are expected to fall by two and a half percentage points. Can you calculate the expected change in net interest income that this thrift institution might experience? What change will occur in net interest income if interest rates rise by one and a quarter percentage points?

4. The Bank of Ghana issued a 3-year bond with a semi-annual coupon of 16.65%. The BIVA Bank purchased GHS 50 million of the bonds when the current yield of the bond was 15% on the market. a) Calculate the duration of the bond. b) An analyst with The BIVA Bank forecasts that the interest rate will rise by 0.5% next month. What is the percentage change in the price of the bond? c) What is the cedi change in the price of the bond? Calculate the new price of the bond on the market.

5. Suppose that XYZ Banks balance sheet is: Asset (million cedis) Loans 200 Total 200 Liabilities (million cedis) Deposit 160 Equity 40 Total 200 Assume that the duration of the asset is 5 years and that of the liability is 3 years. The bank expects interest rate to rise by 1% from the current level of 10%. a) Calculate the potential loss on the banks net worth. b) Prepare the banks balance sheet after the rate change.

6. A bank holds a 10-year $2 million face value bond with a duration of 8 years. The current price = $950,000. Interest rates are expected to increase from 9% to 11% over next 3 months. Demonstrate how the bank can use a forward contract to hedge the interest rate risk.