Financial systems in developing and developed economies have undergone financial sector liberalisation. Basically, a true liberalised financial system is the one in which enough deposits are efficiently mobilised and sufficient loans and advances granted to credit worthy customers couple with the “independence” of the financial system from government interference. This is plagued with issues of collaterised regime in developing countries like Ghana. Generally, loans or “credit” constitutes the largest single income-earning asset in the portfolio of most banks. Banks usually perform financial intermediation activity which have some implication for economic development of nation. Besides, there are several factors that influence intermediation process thereby preventing the financial system from operating at its optimal level. Banks can make profit from their intermediation roles. Additionally, finance literature provides support of the view that countries with efficient financial systems grow faster, while inefficient financial systems stand the perils of bank failures and lags behind in economic growth and development. Banks in Ghana have performed their financial intermediation function and its implication for profitability have been established. Interestingly, however, banks that made the most loans and advances were not necessarily those that made most profits. It is recommended that to remain profitable in the banking business in Ghana, management must not only put strategies in place to mobilize deposits and make out loans and advances but also institute procedures to efficiently manage cost. Furthermore, government must also put policies in place to motivate banks to mobilise more deposits and make out more loans to deepen the financial system.

 Required: 

a) Explain the following concepts: 

i. financial intermediation. ( 3 marks) 

ii. Collateral. ( 3 marks) Page 3 of 6 

iii. Financial deepening. (3 marks) 

b) Why are financial intermediaries important to the financial system? ( 4 marks) 

c) Explain what is meant by the phrase “efficient financial system”. ( 4 marks) 

d) Describe four (4) ways financial intermediation can increase the efficiency of the financial systems? ( 8 marks) 

Question Two (25marks) 

a) In not more than one 1 page, explain what we mean by a Treasury bill, a certificate of deposit and commercial paper. How do you assess the essential difference between the three classes of securities? (18 marks) 

b) Kofi Brokeman, an investor, has purchased an asset for GHȼ32 000 at the beginning of the 2019. This investment is worth, GHȼ46 000 at the end of June 2020. What is the Ghana Cedi return and annualized rate of return for the investment? ( 7 marks) 

Question Three (25marks) 

Assuming Kofi Karikari company Ltd decides to enter into the market to raise additional capital to finance their loses before selling the company. In not more than two pages, discuss the various orderly processes in raising capital from the primary market. (25 marks) Question Four (25 marks) 

a) Distinguish between the following: 

i. Primary market and secondary market (5 marks) 

ii. Money market and capital market (5 marks) 

iii. Fixed income security and convertible security (5 marks) 

iv. Systematic risk and Unsystematic risk (5 marks) 

v. Equity market and Debt market ( 5 marks) 

Question Five (25marks) 

a) Depository Institutions and Other Financial Corporations accept monetary deposits from savers and investors, and then lend these deposits to borrowers. Both the depositors and borrowers benefit from the services they provide. In Ghana, specialised deposit-taking institutions carry on specific businesses 

Required: 

List ten (10) businesses depository institutions can carry on without violating any regulation or Act or law of bank of Ghana. (5 marks) 

b) Adzoa Smart is concerned about the safety of the money in her savings account. Which type of depository institution should she choose? ( 6 marks) 

c) Abena wants to be able to use funds in her checking account but finds going to the bank to withdraw cash to be inconvenient. She would like a more effective way to access her checking account funds. What would you suggest she do? ( 7 marks) 

d) State two major types of depository institutions in Ghana and explain the key differences between them ( 7 marks) 

Question Six ( 25 marks) 

a) Explain the following concepts in relation to bonds: 

i. Coupon. ( 1 mark) 

ii. Maturity date. ( 1 mark) 

iii. Yield to maturity. (1mark) 

iv. Current yield (1 mark) 

v. Premium price (1 mark) 

vi. Discount price (1 mark) 

b) State and explain four (4) importance of bond markets. ( 8 marks) 

c) Do you agree with the assertion that long term loans are more beneficial than short term loans? If yes why? OR If No why? What types of participants are in the capital market?

Answer rating: 100% (QA)

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