Note: The marks for part a) appear as “as marks” in the document, likely an OCR error for “[15 marks]” based on total allocation (a:15, b:10, c:5 = 30).

a) Liquidity risk, the inability to meet obligations without significant losses, is managed daily by bank treasuries under BoG’s Liquidity Risk Management Guidelines. From experience in Ghanaian banks post-2017 cleanup, here are five major sources and suggested management strategies for shortfalls:

• Funding Source Concentration: Over-reliance on short-term deposits or interbank borrowing. To manage shortfalls, treasurers diversify funding via long-term bonds or retail deposits, as GCB Bank did post-DDEP by issuing tier-2 instruments.
• Asset-Liability Mismatch: Maturing liabilities exceeding liquid assets. Treasurers use contingency funding plans (CFPs), maintaining high-quality liquid assets (HQLA) like T-bills, exceeding BoG’s LCR minimum of 100%.
• Market Disruptions: Events like the 2022-2023 inflation or DDEP causing market illiquidity. Daily, treasurers access BoG’s repo facilities or collateralized borrowing, stress-testing scenarios per Basel III.
• Operational Outflows: Unexpected withdrawals from digital channels or ATMs. Management involves real-time monitoring with intraday liquidity tools, as mandated by BoG’s Cyber and Information Security Directive 2020, and holding buffers.
• Contingent Liabilities: Off-balance sheet commitments like letters of credit crystallizing. Treasurers mitigate by setting limits and using repurchase agreements (repos) for quick liquidity, as seen in Stanbic Bank’s operations during cedi volatility.

b) A repurchase agreement (repo) is a short-term secured loan where one party sells securities to another with an agreement to repurchase them at a higher price on a specified date, effectively providing collateralized funding. In detail: The seller (borrower) transfers title of securities to the buyer (lender) for cash, repurchasing at the original price plus repo rate interest. It’s used for liquidity management in money markets, governed in Ghana by BoG’s Central Money Markets Office practices, aligning with international standards like those in the UK or USA. Repos reduce credit risk via collateral and haircuts (e.g., 2-5% discount on value).

Five eligible securities for repos in Ghana include:

• Government of Ghana Treasury Bills (T-bills)
• Government of Ghana Bonds (domestic)
• Bank of Ghana Bills
• Eligible Corporate Bonds rated by approved agencies
• Mortgage-Backed Securities (if securitized under BoG regulations)

c) A Government of Ghana domestic bond is a debt security issued by the Ghanaian government in local currency (GHS) to domestic investors via auctions on the Ghana Fixed Income Market (GFIM), with maturities from 2-20 years, paying periodic coupons. Post-DDEP (ended 2023), old bonds were exchanged for new ones with lower coupons (e.g., 8-10%) and extended maturities to ease debt burden, impacting bank holdings.

It differs from a Government of Ghana Eurobond, which is issued in foreign currency (e.g., USD) to international investors on global markets like London Stock Exchange, with higher yields due to currency risk. Eurobonds were excluded from DDEP, focusing on domestic debt, and face higher default risks as seen in Ghana’s 2022 suspension of payments, unlike domestic bonds’ local jurisdiction under BoG oversight.