Level: Level 3

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PBL – OCT 2022 – L3 – Q7 – Legal Mortgage over Leasehold Interest

Outline key considerations for taking a legal mortgage over leasehold property and steps to perfect it for a sole proprietorship loan.

Question

Amoasi Enterprise is a sole proprietorship owned and controlled by John Amoasi. The business is engaged in the supply of chips and stones for building projects. John Amoasi has applied for a loan of GHC 500,000 for the purchase of a used tipper truck. He shows you an Indenture covering his Leasehold interest in a property located a Winneba valued GHC 1,000,000.00.

(a) What key consideration would you have in mind in taking a legal mortgage over a leasehold interest? [8 Marks]

(b) Outline the steps which you would take to acquire a legal mortgage over the property in such a manner that the bank’s interest is absolutely protected. [12 Marks]

[Total marks:20]

Answer

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Tags: Collateral Protection, Indenture Review, Key Considerations, Land Registration, Leasehold Mortgage, Perfection Steps, Sole Proprietorship Lending
Level: Level 3

Topic: Leasehold Interests
Series: OCT 2022

PBL – OCT 2022 – L3 – Q6 – Alternative Securities for Construction Loans and Lender Remedies

Identify alternative security for a construction loan where traditional assets are unsuitable, and outline steps to perfect it; list key remedies under the Borrowers and Lenders Act 2020 for borrower default.

Question

(a) Your key customer BBA Construction Ltd. is engaged in a contract for the construction of a 200 kilometer road in the Central Region. He has completed over 60 % of the project and has certified works of GHC 800,000 to be paid. He is applying for working capital loan of GHC 500,000 to purchase materials for the project.

He has no security to offer save the assets of the company which comprise a one storey office building and the road construction equipment. Your managing director is not enthused about taking a fixed and floating charge over the assets of the company as they are subject to rapid wear and tear. The key person Mr. Aras also does not have any personal landed property to offer.

From the above, identify what alternative security may be available in the circumstances and how you would proceed to take the security to ensure that the bank’s interest is protected. [16 Marks]

(b) You have been asked to deliver a lecture on the remedies of a lender in the event of a borrower defaulting in the servicing of a facility. Mention the four key remedies provided under the Borrowers and Lenders Act (2020) Act 1052. [4 Marks]

[Total marks:20]

Answer

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Tags: Alternative Securities, Assignment of contracts, Borrowers and Lenders Act, Collateral Registry, Construction Loans, Default Enforcement, Floating Charges, Lender Remedies
Level: Level 3

Topic: Securities Acceptable to Bankers
Series: OCT 2022

POB – LP OCT 2022 – L3 – Q4 – Collecting Bank Duties and Protections in Cheque Collection

A bank collects a stolen cheque for a fraudulent customer, opens an account after clearance, allows withdrawal, and faces a lawsuit from the drawer; questions cover definition of collecting bank, duties, statutory protections, common law defences, and applicability of protection.

Question

As a new Manager at the Edubiase branch of your bank, in the course of your work, your branch has collected a cheque for the account of a customer who turned out not to be the true owner of the cheque. Your Operations Manager did not open the account straightaway but for reasons unknown to you, he told the customer Timothy Ankrah that the bank would not open the account immediately but would only open the account if the cheque of GHC 500,000 the prospective account holder presented was cleared. After the cheque had cleared, your Operations Manager proceeded to open the account and the very next day, Timothy withdrew an amount of GHC 400,000.00 which he claimed was for the purchase of a car.

It transpires that the cheque had been stolen and Timothy was only an impersonator. Timothy is nowhere to be found.

The drawer of the cheque Mr. Banson has sued the bank for refund of the monies he has lost.

(a) What is a collecting bank? [2 Marks]

(b) Mention three duties of a collecting bank. [3 Marks]

(c) Mention and explain the statutory protection available to a collecting bank that collects a cheque for a party who is not the true owner of the cheque? [9 Marks] (d) What are the common law defences available to a collecting bank? [4 Marks]

(e) Will the bank be able to avail itself of the statutory protection? [2 Marks]

[Total marks:20]

Answer

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Tags: Bills of Exchange Act, Cheque Collection, collecting bank, common law defences, Conversion, Duties, Statutory Protection
Level: Level 3

Topic: Payments and collection of cheques and other instruments
Series: OCT 2022

PBL – OCT 2022 – L3 – Q3 – Company Objects Amendment and Cheque Handling Policies

Legal principles for advising on amending company objects for new business ventures and handling a cheque payable to a related company for crediting to a personal account.

Question

State the legal principles you would take into consideration in resolving the following legal matters that have come to your attention.

(a) Mr. Nkumsah is majority shareholder and Chairman of the Board of Directors of Nkumsah Trading Ltd, which has an account with you for the past twenty years. The company issued debentures secured by a floating charge over the company’s assets three years ago. Mr. Nkumsah has 60% shares in the company and is also the sole signatory of the account. Nkumsah Trading Ltd. was established with a registered constitution with the objects of importing medical equipment and ancillary materials. He has applied for a loan of GHC 400,000 for the importation of baby pampers as he claims baby pampers move faster than medical equipment. In appraising the facility, your attention is drawn to the fact that since the company has incorporated with registered objects the company must amend the constitution to enable the company to undertake the new venture. In your discussion with him he asks you of advice of how he could amend the objects of the company’s constitution to enable him to enter into the new venture. He also asks you

what legal difficulties may arise if he engaged in business outside the established objects of the company. [10 Marks]

(b) Secondly Mr. Nkumsah has a cheque payable to a sister company Jamsah Ltd., in which he has shareholding of 50%. His lifelong friend owns the remaining 50%. You advise him that it is a company policy not to credit a cheque payable to a company into a personal account of a director or employee of that company. He argues with you and tells you that since he is the one of the key shareholders he has the right to do so as it is an internal arrangement for him to undertake a specified transaction for the company. [10 Marks]

[Total marks: 20]

Answer

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Tags: Cheque crediting policies, Companies Act 2019, Company constitution amendment, Director Authority, Shareholder Rights, Ultra vires transactions
Level: Level 3

Topic: Ultra Vires Doctrine
Series: OCT 2022

PBL – OCT 2022 – L3 – Q2 – Banker-Customer Confidentiality and Law Enforcement Demands

Scenario involving police demanding customer account information; identify duty of confidentiality, its exceptions, and how to handle the situation.

Question

You enter your office as Retail Manager this morning to find commotion at the front desk of your branch. As you enter you see three persons in police uniforms claiming to be from the National Investigations Bureau (NIB). They claim they have got wind that one Mr. Mahama Obeng who is under investigation for drug trafficking has an account with your branch where he has lodged his ill-gotten gains. They are demanding that your Operations Manager produce the information immediately or he would be hauled to the NIB for impeding an investigation.

(a) What rule of law do you require to resolve this problem? [2 Marks]

(b) Discuss the four (4) exceptions to the duty a bank owes its customers identified in (a) [8 Marks]
(c) How would you deal with the situation that is before you?[10 Marks]

[Total marks: 20]

Answer

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Tags: Banker-customer duty, Confidentiality, Disclosure obligations, Exceptions to confidentiality, Law enforcement, Tournier case principles
Level: Level 3

Topic: Banker and Customer Relationship
Series: OCT 2022

ITF – OCT 2022 – L3 – Q8 – Remedies to Fraud in International Contracts

State five remedies to fraud in international contracts based on a copper blister fraud case.

Question

During the summer of 2020, Geneva-based Mercuria Energy Group said it had been the victim of cargo fraud following its purchase of 10,000 tons of copper blister. When the cargoes started arriving in China, it found containers full of painted stones instead. The bizarre case happened despite security and inspection controls. About 6,000 tons were loaded for shipment in more than 300 containers on eight vessels. But before its journey from a port near Istanbul, the copper was switched with paving stones, spray-painted to resemble the semi-refined metal. Once the vessels were at sea, Mercuria paid $36m over five installments. The fraud wasn’t discovered until the ships began arriving in the Chinese port of Lianyungang. Mercuria, one of the five-biggest energy traders in the world, is seeking redress in Turkish and UK courts against the copper supplier, Bietsan Bakir. Turkish police have taken a number of people into custody in relation to the fake copper scheme. “Suspects have been taken under custody who are thought to be involved in the various parts of this organised crime against Mercuria,” the company said in a statement while thanking the Istanbul Financial Crimes Department.

Note: All parties in all commercial transactions should be aware of the potential for fraud. In some cases, those parties you negotiate with may not even be aware of the liability they pose. The above fraud case gained global attention through social media on March 9, 2021.

REQUIRED

State five (5) remedies to fraud in international contracts.

[Total Marks 20]

Answer

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Tags: Cargo Fraud, Documentary Verification, Fraud Remedies, Inspection, International Contracts
Level: Level 3

ITF – OCT 2022 – L3 – Q7 – Role of Banks in International Trade

List the roles of banks in international trade in bullet points for SMEs under AfCFTA.

Question

The African Continental Free Trade Area (AfCFTA) is organizing training programs to grow the Small and Medium-sized Enterprises (SMEs) and most importantly to deepen their understanding on international trade and how they can take advantage of the banking system for efficient operation and expansion of their businesses. As Head of Trade Finance of your bank, you have been engaged as a resource person by (AfCFTA) to take Chief Operating Officers of these SMEs on the following topic: “The Role of Banks in International Trade”

REQUIRED:

List these roles (in bullet points only) under the various roles for one mark each.

Note: Long and detailed descriptions are not required.

[Total marks 20]

Answer

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Tags: AfCFTA, Banks Role, Financing, International trade, Payment Services, Risk Management, SMEs
Level: Level 3

Topic: Banking services available from banks and other sources abroad
Series: OCT 2022

ITF – OCT 2022 – L3 – Q6 – Issuing Bank’s Undertaking under UCP 600 Article 7

State the issuing bank's undertaking as per UCP 600 Article 7 a (i-v), b, and c.

Question

State the “Issuing Bank’s Undertaking” as enshrined in Article 7 a (i – v), b and c when it issues a credit on behalf of its customer under the current International Chamber of Commerce (ICC) Publication in respect of Uniform Customs and Practice for Documentary Credit – UCP 600.

[Total Marks 20]

Answer

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Tags: Article 7, documentary credit, Honour, Issuing Bank Undertaking, Reimbursement, UCP 600
Level: Level 3

ITF – OCT 2022 – L3 – Q5 – D/A Collections and Buyer Protection

Explain D/A terms, expected instructions on collection order, address suggestion on refusing non-spec goods, and ways for drawee protection in D/A collections.

Question

Mr. Bob Ferguson, senior director of your customer, Adelaide Ltd is negotiating for the first time with suppliers abroad to purchase some outwear garments, which are at present unobtainable in the UK. The terms of payment which the sellers have suggested are a 90 days’ sight draft D/A with presentation through a UK bank. You understand that the presentation will be subject to Uniform Rules for Collections (and the shipping terms are to be CFR UK port). Your customer believes that he will have the opportunity of examining the goods when they are received in the UK and that, if they are not in accordance with specification, he can refuse the goods and will not be liable to pay the sellers, since all charges will be against the goods.

Required

a) Write brief notes on the terms of payment mentioned above; [4 marks]

b) Indicate the instructions you would expect to see on the collection order; [8 marks]

c) What would say to the suggestion by Mr. Bob Ferguson that, if goods were not in accordance with specification, the company could refuse to take up and pay for them? [6 marks]

d) How can the drawee obtain a measure of protection with D/A collections? [2 marks] [Total Marks 20]

Answer

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Tags: Bill of Exchange, Buyer Protection, CFR Terms, Collection Order, Documents Against Acceptance, Specification Compliance
Level: Level 3

Topic: Uniform Rules for Collections
Series: OCT 2022

ITF – OCT 2022 – L3 – Q4 – Back-to-Back Credits for Import Financing and Cash Flow

Describe back-to-back credits to protect the customer and assist cash flow, assess appropriateness for German supplier in Euros, and suggest a compromise for compliance.

Question

Builders Merchants Ltd, customers of your bank, supply the building construction industry with a wide range of building materials and products. Their Financial Director, Mr. Kwame Annoh, calls to see you to discuss a CIF contract, which has been signed, to supply a range of fittings and building materials to an overseas buyer. During the conversation you discover that all the goods will be bought from overseas and that all the suppliers are insisting upon secured methods of payment. The Financial Director asks you to suggest a method by which his company can be fully protected, since cash flow considerations are causing some concerns at the present time. The overseas CIF contract is expressed in sterling but one supplier based in Germany, is insisting upon being paid in Euros.

Required

a) A brief description of basic instrument which would be appropriate in answering the needs of the Builders Merchants Ltd. Indicate why your suggestion will cater for your customer by assisting them to overcome their cash flow difficulties and why it will also give some comfort to their potential suppliers. [12 marks]

b) State briefly whether the method described by you in (a) is or is not, appropriate to the contract with the German supplier. Give reasons for your answer. [2 marks]

c) A compromise that you would consider arranging for Builders Merchants Ltd. which would assist them in complying with the request of the German supplier, bearing in mind that the German company requires security of payment.

[6 marks] [Total Marks 20]

Answer

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Tags: Back-to-Back Credits, Cash Flow Management, Multi-Currency Contracts, Secured Payment, Supplier Security
Level: Level 3

Topic: The main types of documentary letters of credit
Series: OCT 2022

POB-LAW-AND-PRACTICE – APRIL 2024 – LEVEL III – Q6 – Realizing Assignment of Life Insurance Policy

Case study on bank's surrender of an assigned life insurance policy as security, followed by death of the borrower; advise on procedure for realization upon death and handling executor's demands.

Question

Parkinson Mainnoo, a retired Company Director, has a limit of GHC200,000 on his current account, but with a borrowing at GHC 150,000 the account became inactive twelve months ago. There was no response to your letters and last December you called in the borrowing. Again, there was no response and as you held a legal charge by Mainnoo over an Endowment Life Policy, nominal value GHC 250,000, with a surrender value of GHC 215,000, you surrendered the policy.

Now, seven (7) weeks later, you had a visit from Mr. Mainnoo’s son, David who told you that his father died in hospital last week and that he is named as Executor in the will. He enquires about the Life Policy and is astounded to learn that the bank has surrendered it. He claims that as sole beneficiary, he has, by your action, been deprived of the Capital Value which would have accrued to the estate upon his father’s death. He further states that had the bank required, they would have learnt that his father was seriously ill in hospital. Mr. David Mainnoo, who is a legal executive with a firm of solicitors, says that in any even the bank should have given three (3) months’ notice before realizing the Security and he threatens action as Executor and sole beneficiary.

(a) Advise the bank on the procedure for realizing an Assignment of a Life Insurance Policy in the event of death of the Life Assured. [15 marks]

(b) How should the bank deal with David’s demand? [5 marks]

[Total: 20 marks]

Answer

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Tags: Assignment, Banking Security, Death of Life Assured, Executor Demands, Ghanaian banking law, Life insurance policy, Realization
Level: Level 3

Topic: Enforcement of Securities
Series: APR 2024

POB-LAW-AND-PRACTICE-APRIL-2024-L3-Q4 – Stop Payment Instruction on Cheque and Bank’s Liability

Discuss the bank's position after paying a cheque despite a verbal stop instruction, not recorded, and steps to protect interests amid the payee's receivership.

Question

Aggregates Ltd., a large engineering company, has banked with you for ten (10) years. You have supported it with borrowing facilities from time to time, to help to finance work-inprogress, against a legal mortgage over the company’s land and buildings. For the last few months the account has been operating in credit.

A week ago, one of your clerks took a telephone call from the Company Secretary, instructing the bank to stop payment of a cheque for GHC 205,000, drawn in favour of Vacornis Ltd., a building company which was in the course of erecting a new factory on your customer’s land. This cheque was a stage payment under the terms of the contract. Unfortunately, your clerk suffered an accident in the office shortly after taking this call and, as a result, the message was not recorded. On the following day, the cheque was presented in the clearing and was paid. The letter from the company confirming the telephone call has only just been received, and the company mentions that the reason for its stopping the cheque is that Vacornis Ltd. has had a receiver appointed by its bankers.

What is the bank’s position? What steps must now be taken in the best interests of the customer and the bank?

[Total: 20 marks]

Answer

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Tags: Bank's Duty, Cheque Payment, Confirmation Requirements, Receiver Appointment, Stop Payment Order
Level: Level 3

Topic: Payments and Collection of Cheques
Series: APR 2024

POB-LAW-AND-PRACTICE-APRIL-2024-L3-Q3 – Joint Account Operations After Death of Co-Holder

Advise the bank on handling a joint account after one holder's death, where the survivor requests transfer, followed by family demands for estate purposes.

Question

Jacob Osei and Bernard Mensah operate a joint account with you. The mandate on the account is either to sign. Jacob is frequently out of the country so most of the time it is Bernard Mensah who has been coming to the bank personally to make payments into the account. On a few occasions Jacob has remitted funds into the account from abroad. You have just received notice that Jacob has passed away.

Bernard who has an individual personal account with you has sent you instructions to transfer the balance from the joint account into his personal account since as he says he is the “sole survivor” to the account. Two days after you have complied with the instructions, five of the elderly family members of the Osei family are before you to request for the balance on the account to enable them to apply for Letters of Administration for the management of Jacob Osei ‘s estate.

Advise the bank.

[Total: 20 marks]

Answer

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Tags: Death of Customer, Estate Management, joint accounts, Letters of Administration, Survivorship Clause
Level: Level 3

Topic: Types of Accounts Holders
Series: APR 2024

POB-LAW-AND-PRACTICE-APRIL-2024-L3-Q2 – Error in Crediting Account and Implications

Discuss the positions of parties involved when a bank credits funds to the wrong account, leading to assumptions and distributions that exhaust an estate.

Question

Joseph Blue paid in a cash of GHC 50,000 into his account with the bank and this amount was credited in error to the account of Joseph Brew, another customer. It happened that Joseph Brew was owed GHC 50,000 by John Morgan who told Brew that he (John) had received a cheque for GHC 50,000 from Gifty Mbroh. The cheque would be paid into Brew’s account. John did not fulfill his promise; but having sighted a cash deposit transaction on his bank statement Brew issued a receipt to John believing that the credit came from him. Two months after the death of John his executor, who was unable to reconcile the deceased’s account, advertised for creditors, but did not hear from Brew. The executor had concluded that the debt to Brew had been paid having sighted his receipt in John’s records. Consequently all creditors were paid and the deceased’s estate was exhausted. A few months later Joseph Blue who had now noticed the omission of the credit on his statement, observed and queried the bank.

Discuss the position of the parties showing who could suffer a loss.

[20 marks]

Answer

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Tags: Account Crediting Error, Banker-Customer Relationship, Change of Position Defence, Mistaken Payment, Recovery of Funds
Level: Level 3

Topic: Banker and Customer Relationship
Series: APR 2024

ITF – APR 2024 – L3 – Q8 – Post-Shipment Finance Products

Explain briefly the post-shipment finance products: Export Bill Negotiation, Export Bill Discounted, Advance against Banker's Acceptance, and Advance against an Export Bill sent for Collection.

Question

Post-Shipment Finance refers to an Advance or Loan extended to the exporter on the strength of documentation after goods have been shipped to the importer. It is more popular in Cross Border Trade transactions. This facility is extended to the exporter either on with or without recourse basis and is also applicable to both Documentary Credit and Non-Documentary Credit transactions.

REQUIRED With the above in view, explain very briefly, the following Post-Shipment Finance Products: A. Export Bill Negotiation B. Export Bill Discounted C. Advance against Banker’s Acceptance D. Advance against an Export Bill sent for Collection

Answer

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Topic: Advance against banker's acceptance, Export bill negotiation, FINANCIAL SERVICES FROM BANKS AND OTHER SOURCES
Series: APR 2024

ITF – APR 2024 – L3 – Q3 – Cost Calculation for Specialized Steel Quotations

Calculate the effective cost of 100 tons of specialized steel from different country quotations considering payment terms and additional information and determine the most favorable quotation ignoring other charges.

Question

Held and Sons are Stockholders in London whose account is operated on Overdraft basis. Hitherto, they have obtained their Stocks in the UK, but they are now forced to look elsewhere for supplies of specialized steel. They have received the following quotations:

Country	Price Per Ton	Payment Terms
a. Norway	NOK 2,125	FOB, Oslo Open Account: Settlement one month after shipment.
b. Denmark	DKK 1,560	CFR, London Draft drawn payable two months after shipment (Collection Charges for buyer).
c. Turkey	TRY 2112	CIF, London Irrevocable Documentary Credit payable three months after shipment.

Using additional information set out below, show by calculating the cost of 100 tons of the steel, which of quotations (a), (b) and (c) would be the cheapest for your customer.

Freight charges from any European Port £5 per ton
Insurance (to be affected on 110% of CIF value) 1% payable in £
Collection Charges (total for both banks) ¼ %
Documentary Credit Charges (including Acceptance Commission) ¾ %
Overdraft Interest for one month (considered as 1/12 of a year) 15% pa.
Ignore all other possible charges.

It is to be assumed that your customers would have covered any Exchange Risk on the day of shipment, in accordance with rates quoted below, and that all payments and charges relative to any particular quotation are debited on the same day.

	Spot	One Month	Two Months	Three Months
Norway	12.20 – 12.50	10 – 12c disc	15 – 18c disc	20 – 23c disc
Denmark	8.90 – 9.10	8 – 5c pm	10 – 8c pm	14 – 11c pm
Turkey	11.80 – 12.05	12 – 9c pm	14 – 11c pm	16 – 12c pm

Answer

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Tags: Cost Calculation, Financing, Import Costs, international suppliers, Overdraft, Payment Terms, Security, steel quotations
Level: Level 3

Topic: CIF), Foreign exchange rates, Forward Contracts, Import financing, Risk Management
Series: APR 2024

ITF – APR 2024 – L3 – Q2 – Option Forward Contracts and Rate Calculations

Define an option forward contract and calculate the applicable rates for three scenarios involving option contracts for buying or selling foreign currencies (USD, NGN, CHF) based on given spot and forward rates.

Question

(a) What do you understand by Option Forward Contract?

(b) From the following scenarios, calculate the appropriate rate for your customer, by specifically choosing the correct Option Rate applicable in each circumstance: I. Your customer wishes to take out an Option Contract on 1 March for the period 1 March to 1 April, to buy US $30,000 to pay for goods imported from the USA. Your bank’s rates are as follows: 1 March Spot USD/GHS 11.3450 11.3540 One month forward 0.0520 0.0545 cedis dis.

ii. To manage the risk of its Foreign Exchange, your customer came to arrange for Forward Exchange Contract for export proceeds of NGN 7.8 million due within the next two months. Your customer wishes to take out an Option Contract on 1 March for the period 1 April to 1 May to sell the Foreign Currency to your bank. Your quoted rates are as follows: 1 March Spot GHC/NGN 68.0110 68.0125 One month forward 0.0120 0.0145 naira dis Two months’ forward 0.0165 0.0195-naira dis.

iii. The Import Bill of your customer falls due within the next three months. The customer wishes to take out an Option Contract on 1 March to pay the Swiss Franc 25,000 anytime between 1 May and 1 June. Rates are as follows: 1 March Spot CHF/GHS 12.8215 12.8265 Two months’ forward 0.0865 0.0890 cedis dis Three months’ forward 0.0910 0.0945 cedis dis

Answer

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Tags: CHF/GHS, export proceeds, Forward Exchange, GHS/NGN, Import Payments, option forward contract, rate calculation, USD/GHS
Level: Level 3

Topic: Forward Contracts, Mechanics of forward contracts, Protection against exchange risks, Rates of exchange
Series: APR 2024

ITF – APR 2024 – L3 – Q1 – Financing Options for Advance Payment

Calculate and compare two financing options for a customer awaiting an advance payment under a construction contract: borrowing the USD amount or the GHS equivalent, considering exchange rates, interest, fees, and a forward contract; select the most favorable option from the customer's perspective.

Question

Zakaria Construction Plc. (ZCP) are your customers specialized in the construction of highways. Sometime in February, your customer approached you to discuss their intention to apply for a Bid Bond to participate in an International Competitive Tender by the Ministry of Roads and Highways. The Tender is for the award of a contract to construct the Eastern Corridor Road. After discussions with your bank, the Bid Bond was issued in Favour of Ministry of Roads and Highways. On March 1, Mr. Adamu, the Chief Finance Officer of ZCP, called to inform you that the company has successfully won the Tender and had been awarded a contract to construct a portion of the main project. At the meeting, Mr. Adamu showed other documents confirming the award of the contract – which also showed the contract value as USD1.2million. The meeting discussed at length, how the bank could assist ZCP to obtain an Advance Payment Bond in Favour of Ministry of Roads and Highways to enable the company access $11.25 %$ initial Mobilization Funding of the contract value.

The following events took place: a. On April 1, the Advance Payment Guarantee was issued and submitted to the Ministry of Roads and Highways. b. The $11.25 %$ Advance Payment Funding is confirmed by Ministry of Roads and Highways and will be received by your bank exactly in three months’ time, on July 1, for customer’s account. c. Also on April 1, the company entered into three months’ Forward Contract to sell the US Dollar proceeds of the $11.25 %$ Advance Payment to your bank on arrival of funds.

ZCP has to acquire materials before main construction works begin in July and so, have requested your bank for immediate funding and have proposed two options as follows: I) To borrow the US Dollar amount of the $11.25 %$ Advance Payment for three months and repay when it is received on July 1. ii) To borrow Ghana Cedi equivalent of the US Dollar amount for three months and repay from proceeds of the three months Forward Contract.

Rates available for the day are as follows:

April 1,	Spot	10.2570
One month forward	0.0085	10.2640
Two months’ forward	0.0115	0.0095 cedis discount
Three months’ forward	0.0135	0.0125 cedis discount
		0.0145 cedis discount

You are also given the following additional information: a. Term SOFR (Secured Overnight Financing Rate) which has replaced the LIBOR, is quoted this morning for 3 months US Dollar at $5.1 %$ with your bank’s margin at $4.5 %$. b. Commitment and Arrangement Fees are charged separately on Dollar borrowing at $1.50 %$ and $0.50 %$ respectively. c. Interest and other charges on US Dollar borrowing should be translated at middle-rate. d. For ZCP, your bank will lend local currency at $2 %$ above its Base Rate of $21.75 %$ p.a. e. Processing Fees for Cedi Facility is $1.0 %$. f. Cedi Facility also attracts Group Insurance Commission of $1.50 %$.

REQUIRED Calculate each of the two options and choose the most favorable one from your customer’s point of view, stating your reason.

Answer

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Tags: Advance Payment Bond, bid bond, Fees, Forward Contract, GHS Loan, Interest calculation, SOFR, USD Loan
Level: Level 3

Topic: Foreign Currency Borrowing, Forward Contracts, Local Currency Borrowing
Series: APR 2024

CIB GH – INTRODUCTION TO ACCOUNTING – APRIL 2024 – L1 – Q1 – Users of Accounting Information and Financial Ratios

State five users of accounting information and their needs; calculate specified ratios from given financial statements and explain gearing implications.

Question

a) State any FIVE (5) users of Accounting Information and their information needs. (5 marks) b) The following is a summary of the Final Accounts of Balance Ltd for the year ended 31st December 2023. Statement of Profit or Loss Account for the year ended 31st December 2023

	GHȼ	GHȼ
Turnover		1,400,000
Cost of Sales	(800,000)
Gross Profit		600,000
Distribution Costs	64,000
Administrative Expenses	140,000
		(204,000)
Operating Profit		396,000
Interest Payable	50,000
Profit Before Tax		346,000
Company Tax	(58,000)
Profit After Tax		288,000
Profit and Loss Brought Forward	40,000
		328,000
Ordinary Dividend	(250,000)
Transfer to Reserves	(52,000)
Retained Profit		26,000

Statement of Financial Position as at 31st December 2023

	GHȼ
Non-Current Assets (Net)	1,100,000
Current Assets
Inventory	180,000
Receivables	100,000
Bank	60,000
	340,000
Total Assets	1,440,000
Equity and Reserves
GHȼ1 Ordinary Shares	450,000
General Reserve	94,000
Retained Earnings	26,000
	570,000
Non-Current Liabilities
Long Term Loans (4%)	550,000
Current Liabilities
Payables	62,000
Dividends	200,000
Taxation	58,000
	320,000
Total Equity and Liabilities	1,440,000

You are required to: Calculate each of the following Ratios (where appropriate calculations should be shown to two decimal places) and answer the question in vii

i) Sales to Capital Employed (2 marks)

ii) Liquid (Acid Test) Ratio (1 mark)

iii) Interest Cover (2 marks)

iv) Dividend Cover (2 marks)

v) Gearing Ratio (2 marks)

vi) Earnings Per Share (2 marks)

vii) Explain the implications of the level of Gearing for the Ordinary Shareholders of Balance Ltd. (4 marks)

(Total: 20 marks)

Answer

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Topic: Performance Assessment
Series: APR 2024

ITF – APR 2024 – L3 – Q8 – Post-Shipment Finance Products

Explain four post-shipment finance products: export bill negotiation, discounting, advance against banker's acceptance, and advance against export bill for collection.

Question

REQUIRED With the above in view, explain very briefly, the following Post-Shipment Finance Products:

a. Export Bill Negotiation [5 Marks]

b. Export Bill Discounted [5 Marks]

c. Advance against Banker’s Acceptance [5 Marks]

d. Advance against an Export Bill sent for Collection [5 Marks] [Total Marks 20]

Answer

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Topic: Finance against ECGD schemes
Series: APR 2024

Level: Level 3

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