a) Distinguish between Absolute form Purchasing Power Parity (PPP) and Relative form Purchasing Power Parity (PPP) theories. (5 marks) b) Ghana's inflation is forecasted to be 10.2% over the coming year whilst that of South Africa is forecasted to be 6.5%. The current exchange rate between Ghana Cedi and the South African Rand is 0.32 ZAR per 1 GHS. i. How should we quote the exchange rate between Ghana Cedi and the South African Rand (ZAR) in a year's time to avoid arbitrage? (10 marks) ii. A Ghanaian company is importing goods worth ZAR 20m in a year's time, how much GHS will the company require to import the goods? (5 marks) iii. If the actual rate at the end of the year is 0.35 ZAR per IGHS, what is the absolute forecast error for the forecast in (5 marks) (i)? Question 2 a) Briefly explain the various sources of short term financing available to a Multinational Company. (8 marks) b) Yogobozz Ltd is a fast growing Ghanaian Multinational Company looking for short term working capital loan to support its expansion to other West African Countries. You have just been hired as a Senior Financial Analyst to help the firm secure a cheap source of funding to achieve its objective. The CEO of this company is concerned about the high interest rates in Ghana and has asked you to borrow in Dollars since USD interest rates are cheaper. You have your own reservations about borrowing in USD due to exchange rate risk and looking for figures to explain to him. You had a chat with the relationship manager of your bank and they are willing to lend $50 million to you for 1 year at an interest rate of 7.5% which appears to be far better than the current 1 year cedi lending rate of 18.01% on the domestic market. Your intention is to borrow in USD and convert this to Ghana Cedis and use for your expansion program. The current exchange rate is 5.20 per USD and is forecasted to be 5.75per USD in a year's time. i. Calculate the effective annual Financing Cost of the USD Loan and advise Yogobozz whether it is prudent to borrow a) Distinguish between Absolute form Purchasing Power Parity (PPP) and Relative form Purchasing Power Parity (PPP) theories. (5 marks) b) Ghana's inflation is forecasted to be 10.2% over the coming year whilst that of South Africa is forecasted to be 6.5%. The current exchange rate between Ghana Cedi and the South African Rand is 0.32 ZAR per 1 GHS. i. How should we quote the exchange rate between Ghana Cedi and the South African Rand (ZAR) in a year's time to avoid arbitrage? (10 marks) ii. A Ghanaian company is importing goods worth ZAR 20m in a year's time, how much GHS will the company require to import the goods? (5 marks) iii. If the actual rate at the end of the year is 0.35 ZAR per IGHS, what is the absolute forecast error for the forecast in (5 marks) (i)? Question 2 a) Briefly explain the various sources of short term financing available to a Multinational Company. (8 marks) b) Yogobozz Ltd is a fast growing Ghanaian Multinational Company looking for short term working capital loan to support its expansion to other West African Countries. You have just been hired as a Senior Financial Analyst to help the firm secure a cheap source of funding to achieve its objective. The CEO of this company is concerned about the high interest rates in Ghana and has asked you to borrow in Dollars since USD interest rates are cheaper. You have your own reservations about borrowing in USD due to exchange rate risk and looking for figures to explain to him. You had a chat with the relationship manager of your bank and they are willing to lend $50 million to you for 1 year at an interest rate of 7.5% which appears to be far better than the current 1 year cedi lending rate of 18.01% on the domestic market. Your intention is to borrow in USD and convert this to Ghana Cedis and use for your expansion program. The current exchange rate is 5.20 per USD and is forecasted to be 5.75per USD in a year's time. i. Calculate the effective annual Financing Cost of the USD Loan and advise Yogobozz whether it is prudent to borrow
