a) What is Asset Liability Management? Enumerate the roles and responsibilities of the various governance structures available to a bank with regard to its interest rate risk management. b) What is Interest Rate Risk? Mention and explain the various sources of interest rate risk in a typical banking book. c) A bank has the following balance sheet extract as at 31st March 2018. Using the table above, i) Calculate 1-year; (a) Rate Sensitive assets (RSAs) (b) Rate Sensitive Liabilities (RSLs) (c) 1-year re-pricing Gap of the bank ii) What is the gap ratio of the bank? iii) What is the impact of 2% increase in interest rate on the banks net interest income over 1-year period? iv) Suppose interest rate increase by 2.5% on assets and 2% on liabilities over the next 1-year. Calculate the cumulative impact on the 1-year Net Interest Income of the bank. Question 2 The Treasurer of Esabelle Company Ltd has forecasted that the company will have excess cash in the next 12 months and is therefore looking for a place to invest. As a treasury consultant advise the treasurer with regard to the following: a) The things to consider before investing b) The available Investment products on the Ghanaian financial market c) The various investment strategies he can adopt and considerations that should be made before adopting such strategies. Question 3 a) Explain what is meant by Bank Credit Creation and Cash Reserve Requirement b) Ansaba Bank Ltd received GHS 1m deposit from one of its trusted customers who had hidden the cash under his pillow since 1st July 2007 on 15 November 2017. The bank is required by law to keep 10 % of all its customer deposit with the Central Bank in a non-interest bearing current account. i) Calculate the maximum loan Ansaba Bank can grant with this loan if the bank does not keep any excess reserve ii) Suppose the number of banks in the economy is 5, how much loans can be created? What if the number of banks in the economy is infinite? iii) Explain two mechanisms the central bank can use to influence credit creation in the economy. iv) The Bank of Ghanas Monetary Policy Committee (MPC) has reduced the Policy rate cumulatively by 300 basis points since the beginning of the year. Explain briefly the impact the reduction in the policy rate will have on the economy of Ghana. Question 4 a) The following extracts were taken from the Bank of Ghana websites as at 23rd June 2018: 91-Day Treasury Bill Rate-13.3251% Interbank Rate-16.23% Monetary Policy Rate-17% Using the above information and the new model, calculate the Ghana Reference Rate as at 23rd June 2018. The current Cash Reserve Requirement (CRR) is 10% and the industry agreed Cash in Vault (CIV) limit is 2%. b) The following extracts were taken from the balance sheet for the month ended 31st March 2018 for Bank XYZ which has been operating in Ghana for the past 20 years. Products Balances (GHS m) Customer Rate Personal Loans (Floating) 350 GRR + 5% Corporate Loans (Floating) 565 GRR+4% Time deposits(1yr maturity) 300 GRR-3% Savings 500 GRR-10% In addition the following data is available: 91-day Treasury bill rate is forecasted to reduce by 200bps over the next 1 year, whilst the Monetary Policy and the Interbank Overnight Rates are forecasted to decline by 300bps and 250bps respectively. i) State the various interest rates on the banks products. What is the Banks Net Interest margin? ii) Suppose the forecasted interest rates are true, calculate the impact on the banks net interest margin in the next 1 year. iii) Repeat (ii) assuming the bank is able to pass on only 50% and 75% of the rate change to its liability and assets customers respectively. iv) The banks internal funds transfer pricing to the Corporate Banking unit is 18.5%. At a management meeting held recently, the Corporate Director was not happy with the internal funding rate as he claims it is making pricing unprofitable. Do you agree with his complain? Explain your answer. a) What is Asset Liability Management? Enumerate the roles and responsibilities of the various governance structures available to a bank with regard to its interest rate risk management. b) What is Interest Rate Risk? Mention and explain the various sources of interest rate risk in a typical banking book. c) A bank has the following balance sheet extract as at 31st March 2018. Using the table above, i) Calculate 1-year; (a) Rate Sensitive assets (RSAs) (b) Rate Sensitive Liabilities (RSLs) (c) 1-year re-pricing Gap of the bank ii) What is the gap ratio of the bank? iii) What is the impact of 2% increase in interest rate on the banks net interest income over 1-year period? iv) Suppose interest rate increase by 2.5% on assets and 2% on liabilities over the next 1-year. Calculate the cumulative impact on the 1-year Net Interest Income of the bank. Question 2 The Treasurer of Esabelle Company Ltd has forecasted that the company will have excess cash in the next 12 months and is therefore looking for a place to invest. As a treasury consultant advise the treasurer with regard to the following: a) The things to consider before investing b) The available Investment products on the Ghanaian financial market c) The various investment strategies he can adopt and considerations that should be made before adopting such strategies. Question 3 a) Explain what is meant by Bank Credit Creation and Cash Reserve Requirement b) Ansaba Bank Ltd received GHS 1m deposit from one of its trusted customers who had hidden the cash under his pillow since 1st July 2007 on 15 November 2017. The bank is required by law to keep 10 % of all its customer deposit with the Central Bank in a non-interest bearing current account. i) Calculate the maximum loan Ansaba Bank can grant with this loan if the bank does not keep any excess reserve ii) Suppose the number of banks in the economy is 5, how much loans can be created? What if the number of banks in the economy is infinite? iii) Explain two mechanisms the central bank can use to influence credit creation in the economy. iv) The Bank of Ghanas Monetary Policy Committee (MPC) has reduced the Policy rate cumulatively by 300 basis points since the beginning of the year. Explain briefly the impact the reduction in the policy rate will have on the economy of Ghana. Question 4 a) The following extracts were taken from the Bank of Ghana websites as at 23rd June 2018: 91-Day Treasury Bill Rate-13.3251% Interbank Rate-16.23% Monetary Policy Rate-17% Using the above information and the new model, calculate the Ghana Reference Rate as at 23rd June 2018. The current Cash Reserve Requirement (CRR) is 10% and the industry agreed Cash in Vault (CIV) limit is 2%. b) The following extracts were taken from the balance sheet for the month ended 31st March 2018 for Bank XYZ which has been operating in Ghana for the past 20 years. Products Balances (GHS m) Customer Rate Personal Loans (Floating) 350 GRR + 5% Corporate Loans (Floating) 565 GRR+4% Time deposits(1yr maturity) 300 GRR-3% Savings 500 GRR-10% In addition the following data is available: 91-day Treasury bill rate is forecasted to reduce by 200bps over the next 1 year, whilst the Monetary Policy and the Interbank Overnight Rates are forecasted to decline by 300bps and 250bps respectively. i) State the various interest rates on the banks products. What is the Banks Net Interest margin? ii) Suppose the forecasted interest rates are true, calculate the impact on the banks net interest margin in the next 1 year. iii) Repeat (ii) assuming the bank is able to pass on only 50% and 75% of the rate change to its liability and assets customers respectively. iv) The banks internal funds transfer pricing to the Corporate Banking unit is 18.5%. At a management meeting held recently, the Corporate Director was not happy with the internal funding rate as he claims it is making pricing unprofitable. Do you agree with his complain? Explain your answer.