9. You observed the following from the market: GBP/USD=1.4270/1.4275 and USD/ZAR=16.8025/16.8125. Find GBP/ZAR. 

10. Suppose the following are taken from foreign exchange trading desk of Goldman Sachs in London of the exchange rates of the euro relative to the pound and the dollar and the dollar relative to the pound as: €1.4381/£ or £0.6954/€ €0.8408/$ or $1.1893/€ $1.7395/£ or £0.5749/$ Using a diagram determine the arbitrage profits a trader will make when he starts with EUR10, 000,000 and buys GBP.

11. Recently the cedi seems to have come under some cumulative pressure and has lost grounds against the major trading currencies. The market dealers have blamed the situation on lack adequate supply of foreign currency by the central bank. The following was taken from myjoyonline.com on 7th June, 2018). “The recent blip in the foreign exchange market that saw a slight depreciation of the cedi against the dollar is short-term and a reflection of a spillover from external developments, an official of the Bank of Ghana has said. Director of Financial Markets Department at the central bank, Steve Opata, told a section of the media that changes in global financing conditions, due to rising oil prices and hikes in US interest rates, were impacting frontier market economies in Sub-Saharan Africa.

However, he said, Ghana is in a strong position to overcome the exchange rate volatility due to excellent economic fundamentals and a good external payments position. “We want to assure the market that we have adequate reserves and the fundamentals do not support the slippages we have seen and we expect it to correct itself,” he said. From the week beginning May 21, the local currency had been under pressure, particularly the cedi against the dollar. The cedi opened on the interbank market on Tuesday at 4.43 cedis to the dollar while the Forex Bureaux are quoting it at 4.65 cedis to the dollar.

“In the case of Ghana, we strongly believe that staying on track with government’s fiscal consolidation plan, the strong trade surplus, narrowing current account balances, significant build-up in international reserves (now standing at US$8.1 billion and 4.4 months of imports cover), and declining inflation rates, should moderate this impact,” he said. On fears of some market participants that MTN’s payments to external shareholders from the initial public offering could impact negatively on the exchange rate, Mr. Opata said the BoG had received assurances from the management of MTN that there were no immediate plans to externalize the payments. “The BoG is engaging the management of MTN Ghana to ensure that any Foreign exchange outflows arising from this transaction is done in a phased and orderly manner,” he said, adding that even if there are some externalizations we will work with them so that it is done in a gradual manner so as not to shock the system. “I don’t think market participants should be too concerned that this will dislocate the market because it would be done in an orderly fashion,” Mr. Opata added. He said the BoG would continue to assess the market and support with liquidity when necessary, adding that, the global and domestic developments do not yet pose a threat to inflation in Ghana in the near term, and that, the BoG is monitoring the situation to take appropriate policy actions as required”. You are required:

a). Describe the exchange rate regime Ghana is operating given the above development.

b). Discuss how external development account for the depreciation of the cedi and in your view whether this development is temporary.

c). Discuss broadly factors that account for the depreciation of the cedi and offer solutions to address the situation categorizing your solutions into short term and long term.