With expertise in forex and BoP at Stanbic Bank Ghana, handling cedi fluctuations, these align with BoG reports.

a) 6 Main Items of Ghana’s BoP Capital Account (6 Marks):

1. Direct Investment (e.g., FDI in mining).
2. Portfolio Investment (stocks/bonds inflows).
3. Other Investment (loans, trade credits).
4. Government Borrowings (external debt).
5. Private Sector Capital Flows.
6. Reserves and Related Items (BoG interventions).

b) Basic Assumptions of PPP Theory (4 Marks):

• Goods are identical across countries.
• No trade barriers or transport costs.
• Markets are competitive, no monopolies.
• Exchange rates adjust to inflation differentials.

c) Equilibrium Exchange Rate per PPP (10 Marks): PPP claims equilibrium when exchange rate equalizes purchasing power: e = P_d / P_f (domestic/foreign prices). Explanation: If inflation higher domestically, currency depreciates to maintain parity. Absolute PPP uses price levels; relative uses changes. In Ghana, cedi vs. USD: if Ghana inflation 10% > US 2%, cedi depreciates 8%. Limitations: Non-tradables ignored; practical in long-run, as BoG uses for forecasts amid 2022 depreciation.