1.A Ghanaian multinational firm has two options in sourcing funds. The first option is to raise cedis on the local financial market at 25% per annum. The second option is to borrow dollars from a US bank at 6% per annum, convert it into cedis and repay the loan in one year. Assuming that the dollar appreciates by 15% against the cedi by the end of the year when the loan is due, calculate which of the two options is cheaper?

2.A Ghanaian multinational company is raising a one-year loan of one million pounds sterling (1,000,000) from the HSBC bank of UK at 8% per annum. Prudential Bank of Ghana is offering the equivalent of the above amount in cedis at 22% per annum. The current exchange rate between the cedi and the pound is 2.3500/1. Consultants to the loan indicate that there are 45%, 30% and 25% chance that the pound sterling would strengthen by 15%, 10% and 5% respectively against the cedi at the end of one year when the loan is due. Advise the Ghanaian multinational which option is cheaper.

3.A firm is attempting to quantify country risk. It gives 40% weight to financial factors and 60% to political factors. Political factor A has a 40% weight and a rating of 3; political factor B has a 40% weight and a rating of 4; and political factor C has a 20% weight and a rating of 2. Financial factor A has a 30% weight and a rating of 5, and financial factor B has a 70% weight and a rating of 1. What is the overall country risk rating?

4.Assume UK one-year money market interest rate is 8%. A Ghanaian firm is planning to borrow British pounds, convert them into cedis and repay the loan at the end of one year. Available information is that the cedi currency will depreciate by 21% against the pound sterling by the time of payment of the loan. Determine the effective financing cost of borrowing the British pound. Will you finance with a local loan costing 28% per annum or the pound sterling loan?

5.Assume the Ghana Cocoa Board is considering borrowing for one year either US dollars or Ghana cedis for the purchase of cocoa in the coming season. The interest rate on the Eurodollar loan is 10.5% per annum, while the cedi loan attracts interest of 15% per annum. The possible probability distribution for the dollar's possible percentage change in value over the life of the loan is given below. Advise Cocoa Board which option it should go for to minimize the cost of borrowing.

6.

Possible percentage changein the dollar over the life of the loan (e_f)

Probability of Occurrence

-6%

20%

-2

10

+8

30

+10

40

100%

7.AngloGold-Ashanti (AGA) is planning to bring in equipment from South Africa for its operations at Obuasi in Ghana. It plans to borrow 100 million South African rand for the purchase of the equipment. Interest rate on the rand is quoted at 15 percent per annum. Possible appreciation or depreciation of the rand vis--vis the cedi within the one-year period is given as in the table below. Compute the effective financing rate of the one-year rand loan. Should AGA raise the loan from a Ghanaian bank which is offering 18.5% interest rate per annum for the facility?

Possible rate of change in the South African rand over the life of the loan (e_f)

Probability of occurrence

-5%

15%

-3%

10%

4%

25%

7%

30%

9%

20%

100%

1. (Note all figures in old Ghana cedis as the project was before 2007). Brower, Inc., just constructed a manufacturing plant in Ghana. The construction cost 9 billion Ghana Cedi. Brower intends to leave the plant open for 3 years. During the 3 years of operation, cedi cash flows are expected to be 3 billion, 3 billion cedi, and 2 billion cedi, respectively. Operating cash flows will begin one year from today and are remitted back to the parent at the end of each year. At the end of the third year, Brower expects to sell the plant for 5 billion cedi. Brower has a required rate of return of 17 percent. It currently it takes 8,700 cedi to buy on U.S. dollar, and the cedi is expected to depreciate by 5 percent per year.

i. Determine the NPV for this project. Should Brower build the plant?

ii. How would your answer change if the value of the cedi was expected to

remain unchanged from its current value of 8,700 cedi per U.S. dollar over the course of the 3years? Should Brower construct the plant then?

1. A Ghanaian firm is contemplating raising one-year loan of one million dollars ($1,000,000) on the Eurocurrency market or its equivalent in cedis on the local market. The interest rate on the Eurocurrency market is LIBOR (6% p.a.) + 2.5% per annum. On the Ghanaian financial market, interest rate on such loans is 16% per annum.Assuming that the exchange rate between the cedi and the dollar at the beginning of the loan period is GHS1.5600/$ and the end of the loan period is GHS1.6400/$, advise which of the two loan options should be selected by this firm to minimize cost.

10.The Ghana Cocoa Board (GhCB) is contemplating borrowing one-year funds in anticipation of the coming cocoa season which starts in September/October 2008. GhCB can borrow from the local financial market in Ghana or borrow a portfolio of funds made up of UK pounds and European Union euros. The information below is the borrowing rates, and the probabilities of expected strengthening of the international currencies vis a vis the cedi.

BORROWING RATES

Ghana cedis18%

UK pounds10%

European Union euros8%

STRENGTHENING OF UK POUNDS

ProbabilityPercentage change in spot rate

30%10%

70%5%

STRENGTHENING OF EUROPEAN UNION EUROS

ProbabilityPercentage change in spot rate

40%8%

60%6%

If GhCB should borrow a portfolio made up of 60 percent UK pounds and 40 percent European Union euros, determine whether Ghana Cocoa Board should borrow from the local financial market or borrow the portfolio of funds made up the UK pounds and the euros.