(a) Difference Between Savings and Investment (6 marks)

Savings and investment are fundamental financial concepts, but they differ in purpose, risk, and returns, especially highlighted by Ghana’s DDEP where savers faced haircuts on bond holdings.

• Definition and Purpose: Savings involve setting aside money in low-risk vehicles like bank deposits or Treasury bills for future use or emergencies, focusing on preservation (e.g., via GCB Bank savings accounts under BoG protection). Investment entails allocating funds to assets like stocks or bonds to generate growth or income, aiming for wealth accumulation.
• Risk and Return: Savings carry minimal risk (protected by Deposit Protection Act, 2016) with low returns (e.g., 5-10% on fixed deposits amid 2025 inflation of ~10%). Investments involve higher risk for potential higher returns (e.g., GSE stocks yielding 15-20% but volatile).
• Liquidity and Time Horizon: Savings are highly liquid (e.g., instant access), suitable for short-term. Investments may be less liquid (e.g., locked-in bonds), for medium to long-term.
• Practical Example: Post-DDEP, savers shifted to T-bills for safety, while investors diversified into mutual funds for recovery gains.

(b) Difference Between Investment and Speculation (6 marks)

Investment and speculation both involve capital allocation but differ in approach, analysis, and intent, crucial in Ghana’s volatile markets post-2017 cleanup.

• Basis and Analysis: Investment relies on fundamental analysis (e.g., valuations under discounted cash flows from syllabus topic 5.6), focusing on intrinsic value and long-term holding. Speculation is based on market timing or trends, often without deep analysis, chasing short-term gains.
• Risk and Return: Investments balance risk-return (e.g., diversified portfolio per Basel principles), with moderate risk. Speculation is high-risk, high-reward, like betting on crypto amid cedi fluctuations.
• Time Horizon and Intent: Investors hold for years (e.g., pension funds in government securities), while speculators trade frequently (e.g., day-trading GSE shares).
• Example: Investing in Stanbic Bank shares post-recapitalization vs. speculating on forex amid BoG interventions.

(c) Features of a Government Bond (8 marks)

Government bonds are debt instruments issued by the Ghanaian government via the Ministry of Finance and BoG auctions, serving as safe investments but exposed in DDEP (2022-2023 haircuts of up to 37%).

• Issuer and Security: Issued by the sovereign, backed by taxation powers, considered low-risk (though DDEP showed default risk).
• Maturity and Types: Vary from short-term (e.g., 2-year) to long-term (e.g., 20-year), fixed or floating rate.
• Interest (Coupon) Payments: Semi-annual fixed rates (e.g., 15-20% pre-DDEP), calculated as yield to maturity (YTM).
• Face Value and Pricing: Par value (e.g., GHS 100), traded at discount/premium based on market rates.
• Liquidity: Tradable on secondary markets via GSE or OTC, but illiquid during crises.
• Tax Treatment: Interest taxable, but exemptions for certain holders under Income Tax Act, 2015 (Act 896).
• Risk Profile: Subject to interest rate, inflation, and credit risk (e.g., DDEP restructuring).
• Redemption: Repaid at maturity, with BoG oversight for fiscal discipline.