a.i) First of all, net-off the foreign receipts and payment before setting up the hedge

Forward Contract Hedge
To calculate the amount of GHS that GPL would need to pay using a forward contract:
Forward Rate (GHS/USD): 12.20
Amount Payable in USD: 500,000
GHS Amount Payable = USD Amount × Forward Rate
GHS Amount Payable = 500,000 × 12.20 = GHS 6,100,000

Money Market Hedge
Step 1: Determine the Present Value (PV) of USD 500,000 in 3 months.
PV of USD Payment = USD500,000 / (1 + USD interest rate × 3/12)
= 500,000 / (1 + 0.03 × 3/12) = 500,000 / 1.0075 = USD$496,271

Step 2: Convert this USD amount to GHS using the spot rate.
Amount in GHS Today = PV of USD Payment × Spot Rate
Amount in GHS Today = 496,271 × 12.00 = GHS5,955,252

Step 3: Calculate the amount of GHS required today if borrowed at the GHS interest rate. Since the company will need to repay this amount in three months, including interest, we find the required GHS investment today:
FV of GHS Payment = Amount Today × (1 + GHS interest rate × 3/12)
FV of GHS Payment = 5,955,252 × (1 + 0.14 × 3/12) = 5,955,252 × 1.035 = GHS 6,163,431

Forward Contract Hedge Cost: GHS6,100,000
Money Market Hedge Cost: GHS6,163,431

Conclusion
The forward contract hedge results in a lower GHS outlay (GHS 6,100,000) compared to the money market hedge (GHS 6,163,431). The difference of GHS63,431 makes the forward contract hedge more cost-effective.
GPL should adopt the forward contract hedge as it is less expensive and provides certainty about the future cash outflow. The company avoids the additional interest cost associated with the money market hedge and locks in the forward rate, mitigating the risk of adverse exchange rate movements.

ii) Internal Hedging Techniques

• Invoicing in Local Currency: GPL could negotiate with its international suppliers to invoice in Ghanaian Cedi (GHS) instead of foreign currencies (e.g., USD or EUR). By doing so, the company transfers the foreign exchange risk to the supplier, effectively avoiding currency risk on its imports.
  This technique is highly effective in eliminating foreign exchange risk for GPL. However, it may be difficult to convince suppliers to accept payments in GHS, especially if they prefer or are accustomed to dealing in USD or EUR.
• Leading and Lagging: Leading involves accelerating payments in anticipation of a currency’s depreciation, while lagging involves delaying payments if the currency is expected to appreciate. For example, if GPL expects the GHS to depreciate against the USD, it could expedite payments to lock in the current exchange rate (leading). Conversely, if appreciation is expected, the company might delay payments (lagging).
  This technique is effective when the company has accurate forecasts of currency movements. However, predicting exchange rate movements is inherently uncertain, and mistiming payments could lead to increased costs.
• Matching: GPL can match its foreign currency inflows and outflows. If the company receives USD payments from customers and has USD liabilities, it can use the incoming USD to settle the liabilities without converting to GHS. This naturally hedges the currency risk.
  Matching is an effective and straightforward way to mitigate currency risk. However, its effectiveness depends on the company having foreign currency inflows that align with its outflows.

b) Positive impacts of technological development on financial markets

1. Improved Efficiency: Technology has greatly enhanced the efficiency of financial markets by enabling faster trade execution and automated processes. High-frequency trading algorithms and electronic trading platforms have reduced transaction times from seconds to milliseconds, leading to quicker and more efficient trading operations.
2. Increased Accessibility: Technological advancements have increased access to financial markets. Online trading platforms, mobile apps and digital wallets have made it easier for individual investors to participate in the markets, regardless of their location or financial status, thus broadening market participation.
3. Enhanced Transparency: Technology has improved market transparency by providing big data and analytics. Investors have greater access to detailed market information, financial reports, and performance metrics, allowing for more informed decision-making and reducing information asymmetry.
4. Cost Reduction: Technological innovations have lowered the costs associated with trading and financial transactions.
5. Advanced Risk Management: Technology has enabled the development of sophisticated risk management tools and models. Advanced data analytics and machine learning allow financial institutions and investors to assess and manage risks, anticipate market trends, and implement more effective risk mitigation strategies.