Question 5 a) Suppose that a Ghanaian Bulk Oil Distribution Company (BDC), PetCrude Limited, is expected to import 10 million barrels of crude oil in twelve (12) months. The prevailing exchange rate and price of crude oil are 15/6.50 GHS and 60 dollars/per barrel, respectively. Further, PetCrude has secured a loan facility in Ghanaian Cedis (to be repaid over the next 60 months) to partly finance the importation. Following the current global trends, it is anticipated oil price will continue to rise, while the Cedi continues to depreciate over the coming months Further, the Monetary Policy Committee (MPC) of Bank of Ghana has just reviewed the monetary policy rate up. As the Chief Risk Officer of the BDC, in the face of the novel Covid-19 pandemic, what are the various risks your company would be exposed to? Design appropriate hedging strategies for each risk type (Hint: Be specific with your hedging strategies and avoid the habit of throwing in unnecessary sentences) 115 marks! b) Explain carefully the differences between a protective put, covered call and collared position. Give specific examples. 15 marks! c) Consider the risk weights of various obligors in Table 3 below Table 3: Risk Weights of Obligors Risk Weight (%) Item 0 Cash and bonds of Ghana government 20 Claims on Ghanaian banks 50 Uninsured residential mortgage loans 100 Corporate Loans, Corporate bonds The assets of LoveGhana bank consist of GHSTOM of corporate loans, GHSSM of government bonds, and GHS20M of uninsured residential mortgages Compute the total of the risk weighted asset of LoveGhana bank 15 marks) Question 5 a) Suppose that a Ghanaian Bulk Oil Distribution Company (BDC), PetCrude Limited, is expected to import 10 million barrels of crude oil in twelve (12) months. The prevailing exchange rate and price of crude oil are 15/6.50 GHS and 60 dollars/per barrel, respectively. Further, PetCrude has secured a loan facility in Ghanaian Cedis (to be repaid over the next 60 months) to partly finance the importation. Following the current global trends, it is anticipated oil price will continue to rise, while the Cedi continues to depreciate over the coming months Further, the Monetary Policy Committee (MPC) of Bank of Ghana has just reviewed the monetary policy rate up. As the Chief Risk Officer of the BDC, in the face of the novel Covid-19 pandemic, what are the various risks your company would be exposed to? Design appropriate hedging strategies for each risk type (Hint: Be specific with your hedging strategies and avoid the habit of throwing in unnecessary sentences) 115 marks! b) Explain carefully the differences between a protective put, covered call and collared position. Give specific examples. 15 marks! c) Consider the risk weights of various obligors in Table 3 below Table 3: Risk Weights of Obligors Risk Weight (%) Item 0 Cash and bonds of Ghana government 20 Claims on Ghanaian banks 50 Uninsured residential mortgage loans 100 Corporate Loans, Corporate bonds The assets of LoveGhana bank consist of GHSTOM of corporate loans, GHSSM of government bonds, and GHS20M of uninsured residential mortgages Compute the total of the risk weighted asset of LoveGhana bank 15 marks)
