The bank requires all corporate clients to leave a compensating balance of

$10\%$ of the loan amount granted in a non$-$interest bearing current account.

The reference benchmark for pricing the bank's loans is the Ghana Reference

Rate $($GRR$).$ A corporate client by name E$5$ limited is seeking to borrow

GHS $20$ m for $5$ yrs on $31$st August $2022.$

i$)$ Calculate the Ghana Reference Rate and the return on this loan

$(7$ marks$)$

ii$)$ The Bank's credit risk department has determined that the bank has

$1\mathrm{.}0\%$ default rate, what is the expected retum for ABG Limited in $(1)?$

$(3$ marks$)$

iii$)$ Do you think the use of GRR as a pricing benchmark for loans in

Ghana can lead to reduction in lending rates in Ghana? $(3$ marks$)$

Assume current $91$ day rate is $29\mathrm{.}91\%,$ Interbank Rate is $22\mathrm{.}06\%$ and the Monetary

Policy Rate is $22\mathrm{.}0\%.$ Cash Reserve Requirement is $13\%$ and Cash in Vault $($CIV$)$ is

$2\%.$