Fundamentals of Finance
and Financial Markets
Course201
1
FINANCIAL MARKETS
2
INTRODUCTION


Perform an essential economic function of
channeling funds from surplus units to deficit
units
Financial markets consist of individuals,
government, institutions & organizations,
foreigners & a set of rules and practices that
facilitate the flow of funds from savers to
users
3
INTRODUCTION (Cont’d)
SURPLUS UNITS (suppliers of funds)
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Individual Investors
Financial Institutions
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Pension & Provident Funds
Insurance Companies
Banks
Mutual funds
Non-Financial Institutions
4
INTRODUCTION (Cont’d)
Governments
Foreign Suppliers of Funds
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Official Development Assistance
Non-resident Ghanaians
Companies
Foreign portfolio investors.
5
INTRODUCTION (Cont’d)
DEFICIT UNITS (borrowers of funds)
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Individuals
financial institutions
non-financial institutions
governments
Foreigners
6
INTRODUCTION (Cont’d)

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Traditionally segmented into money
markets and capital markets with various
financial instruments.
Money Market


The segment where short-term finances are
made available through the issuance & trading of
short-term securities.
Securities here are short-term debt securities
with maturities of 1 year or less.
7
INTRODUCTION (Cont’d)

Capital Market
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Market for the issuance & trading of medium to
long-term securities
Raising of medium to long-term capital
Securities here have medium-to-long-term
maturities of more than one year.
8
AN OVERVIEW OF THE FINANCIAL SYSTEM
INDIRECT FINANCE
Financial
Intermediaries
FUNDS
FUNDS
FUNDS
Lenders (Savers)
1. Households
2. Business firms
3. Government
4. Foreigners
FUNDS
Financial
Markets
Money Market
(less than 1 year)
FUNDS
Borrowers (Spenders)
1. Business firms
2. Government
3. Households
4. Foreigners
Capital Markets
(more than 1 year)
DIRECT FINANCE
9
Money Market Instruments
Money Market Instruments – short-term,
marketable, liquid, low-risk debt securities. They
are sometimes called cash equivalents because
of their safety and liquidity.
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Treasury Bills
Bankers Acceptances
Commercial Paper
Certificate of Deposits
Repurchase Agreements (Repos)
10
Money Market Instruments (Cont’d)

Treasury Bills
 Treasury Bill is a short-term government
promissory note for financing deficits
between government revenues and
expenditure
 Maturities at issue:
 91 Days
 182 Days
 Most actively traded money market
instrument
11
Treasury Bill (Cont’d)


Investors buy the bills at a discount from the
stated maturity value. At the bill’s maturity, the
holder receives from the government a payment
equal to the face value of the bill. The difference
between the purchase price and ultimate maturity
value constitutes the investor’s earnings.
Investors buy Treasury bills by placing an order
through a “primary dealer”. A secondary market
is the market for buying and selling bills which
have already been issued.
12
Commercial Paper

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Short-term unsecured promissory notes
issued & sold by large reputable financial &
non-financial companies;
Raise money on a short-term basis to fund
short-term working capital needs;
An alternative to borrowing from banks, with
the rates being lower than bank lending
rates.
13
Commercial Paper (Cont’d)
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Carries Credit Risk of Issuer
Limited market in Ghana because of:
 Lack of credit rating facilities
 Weak primary and secondary market facilities
In Ghana, commercial paper is usually sold to
merchant banks or discount houses who either
hold them to maturity or place them with other
financial institutions.
14
Certificates of Deposit (CDs)
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CDs are time deposits that have a specified
maturity date;
Issued by a bank or financial institution
May be redeemed prior to maturity (early
redemptions result in a penalty-such as loss
of interest);
Yields offered depend on the term of the
instrument (the longer the term, the higher
the interest rate)
15
Certificates of Deposit (cont’d)
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CD is negotiable, i.e., although the bank has the
deposit for a fixed term, the depositor can, if he so
wishes, obtain cash before maturity by selling the
certificate in the money market.
Banks usually issue NCDs to satisfy loan demand
and to meet reserve requirements.
Interest and principal are both paid at maturity.
Yield on NCDs is at a premium to Treasury Bills of
similar maturity because NCDs are unsecured.
16
Banker’s Acceptances (BAs)
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BAs is a draft drawn on a bank by a customer.
When the bank accepts the draft, it becomes a BA.
Bank can either fund the draft against the company's
deposits or sell the acceptance to another financial
institution for less than face value &, therefore, receive
immediate cash rather than wait to collect the payment
from the customer.
While the acceptance becomes an asset of the buying
financial institution, it still carries the guarantee of the
accepting bank &, therefore, will be honoured by the bank
when it matures.
BAs usually mature within 90 days. They are primarily used
to finance domestic and international trade..
17
Repurchase Agreement (Repo)


Sale of a short-term security in which the seller
agrees to buy back the security at a specified price
& date
Financial institutions which find themselves with a
sudden need for cash can either sell their assets
such as Treasury Bills to another financial
institution or enter into a "REPO" under which the
borrowing or cash-short institution agrees to sell
the asset to a lending or cash surplus institution
with a simultaneous agreement by the borrower to
buy back the asset from the selling institution at a
specified date and price.
18
Repurchase Agreement (Cont’d)

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The difference between the sale price & repurchase price is the source
of return to the holder of the security.
A Bank may sell a 91-day Treasury Bill to a discount house, promising
to buy it back at the end of one week. The discount house makes its
profit from the spread between what it pays the bank when the security
is received and what it receives when the bank repurchases the asset.
In effect, a REPO is a borrowing agreement between two parties. The
lender is said to hold a "reverse repurchase agreement" or “sell back”
while the borrower holds a repurchase agreement or “buy back”. A
repurchase taking place in one-day is called an overnight repo; a repo
with a term of more than one day is called a term repo. Under an
open repo agreement, the agreement stays open until the lender
decides to call the funds.
19
CAPITAL MARKETS INSTRUMENTS
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Capital markets, include medium-to-long-term and
riskier instruments such as:
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Shares
Treasury Notes & Bonds
Corporate Bonds
Derivatives
Shares may only be issued by companies
Bonds may be issued by corporate bodies,
government agencies, municipals, local authorities,
educational institutions, etc
20
Shares
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Shares represent a part ownership of a limited liability
company.
2 types: Preference & Ordinary Shares
Preference Shares
Have preference over ordinary shares in the payment of
dividends and in the distribution of a company's assets in
the event of liquidation.
The holders of the preference shares must receive a
dividend (in the case of an ongoing firm) before the
holders of ordinary shares are entitled to anything. From
a legal standpoint, preference shares are a form of
ownership in a business. Importantly, however, preference
shares usually have limited/no voting privileges.
21
Shares (Cont’d)


Dividends payable on preference shares are
either cumulative or noncumulative.
If dividends are cumulative and are not
paid in a particular year, they will be carried
forward as arrears. Usually, both the
accumulated (past) preference share
dividends plus the current preference share
dividends must be paid before the ordinary
shareholders can receive anything.
22
Shares (Cont’d)

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Ordinary Shares:
 Ordinary Shares are also known as equity securities or
equities.
 Attract no fixed dividend payments;
 Dividends paid when declared; only after payments to
preference shareholders.
 Dividends not paid in any year are noncumulative
Share entitles owner to one vote on matters of corporate
governance that are put to vote.
Two most important characteristics of shares:


residual claim, and
limited liability features.
23
Shares (Cont’d)
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Residual claim means that shareholders are
the last of all those who have a claim on the
assets and income of the company.
Limited liability means that a shareholder’s
total loss in the event of a corporate failure
is his/her capital investment in the company.
24
Treasury Notes & Bonds


Notes and bonds are instruments with
maturities of 1 year or more. Notes
usually refer to 1-2 year instruments.
In Ghana, bonds are usually
instruments with 3 years or more
maturity.
25
Treasury Notes & Bonds (Cont’d)
Examples of Treasury Notes & Government
Bonds
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1-Year Note
2-Year Fixed Rate Bond
3-Year Fixed Rate Bond
2-Year Floating Rate Note (Interest rate spreads over
91-Day Treasury Bill)
3-Year Floating Rate Note (Interest Rate Spread over
182-Day Treasury Bill)
3-Year Government of Ghana Index-Linked Bond
(GGILB), an instrument whose interest is linked to the
rate of inflation.
26
Treasury Notes & Bonds (Cont’d)
Examples of Treasury Notes & Government
Bonds

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2- Year Government of Ghana Bonds
3-Year Government of Ghana Bonds
5-Year Government of Ghana Bonds
Golden Jubilee Bond
27
Treasury Notes & Bonds (Cont’d)
Examples of Corporate Bonds
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HFC Series H Dollar (coupon of 5%)
HFC Series J Dollar (coupon of 6mths USD
Libor + 100 basis point-1%)
SCB Medium-Term Notes (coupon of 91-day
+2%)
28
Corporate Bonds
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Corporate bonds enable private firms to borrow
money directly from the public. They typically pay
semiannual coupons over the their life and return the
face value to the bondholders at maturity. However,
they differ most importantly from treasury bonds in
degree of risk.
Default risk is a real consideration in the purchase of
corporate bonds.
Secured bonds have specific collateral backing them
in the event of firm’s bankruptcy.
Unsecured bonds have no collateral and are called
debentures.
29
Corporate Bonds (Cont’d)

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Subordinated debentures – have a lower
priority claim to the firm’s assets in the event
of bankruptcy.
Callable bonds – give a firm the option to
repurchase the bond from the holder at a
stipulated call price.
Convertible bonds give the holder the option
to convert each bond into a stipulated
number of shares of stock.
30
Classification of Markets
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Auction Market
Over-the-Counter Market
Intermediated Market
Money market
Capital market
Primary Market
Secondary Market
Cash or spot market
Derivative market
31
Classification of Markets Cont’d

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Auction market – In most free market
economies, government securities are sold
by auction. Investors are invited to submit
a sealed bid stating how much they wish to
buy and at what price.
Over-the-counter market – A market for
securities made up of securities dealers who
may not be members of a recognized stock
exchange.
Intermediated market – e.g. banking sector
where banks serve as intermediaries
between borrowers and savers.
32
Primary Market

The market for newly issued securities


Encompasses the various activities by
which issuers issue their securities to raise
money.
Could be done privately or publicly
33
Examples of Primary Market
Activities
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Camelot/SIC/TOTAL/UT Financial
Services/GOIL all issued shares to the public
in the primary market to raise capital
Private companies raise capital by issuing
shares to few strategic investors
BoG issues treasury bills every week to
dealers in the primary market to raise money
to finance government budget deficits.
Banks issue certificates of deposit to
depositors to raise capital
Big companies issue commercial papers to
investors to raise money
34
Secondary Market


Refers to activities that take place after the
primary issue through which securities are
traded from investor to investor with
proceeds of such trade not reverting to the
primary issuer.
Involves trading on an exchange or over
the counter.
35
Examples of Secondary
Market Activities

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Investors who hold Camelot/Goil/CAL Bank/GCB
shares may sell these shares to other investors on
the GSE. Proceeds go to selling shareholders and not
to these companies.
Shareholders of private companies may sell their
shares to other investors, when they want to exit.
Proceeds go to selling shareholders and not to the
private company.
Holders of BoG treasury bills, bank certificates of
deposit, commercial paper may sell them (at a
discount) to Discount Houses before their maturity
dates. Proceeds go to the selling investors and not to
the primary issuers.
36
Traded Shares
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Prices of shares go up and down depending
on the market forces. Investors base their
purchase and sales decisions on expectations
of the company’s growth, earnings, dividend
payments and general economic conditions.
Markets in which share prices fully reflect all
available information are described as
efficient markets.
The Ghana Stock Exchange (GSE) publishes
an up-to-date profile of listed companies after
each trading session.
37
Definitions
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Market Capitalization- the total market value of all
shares listed on the stock exchange.
NRF Investors – the percentage allocation of issued
shares to nonresident foreign investors.
Dividend Per Share – the ratio of the total
dividends paid to the total number of shares
outstanding.
Dividend Yield- the ratio of the annual dividend per
share to the price per share
38
Definitions (cont’d)
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Earnings Per Share (EPS) – the ratio of the net
profit after taxes to the number of issued shares
Price-Earnings (P/E) Ratio – the ratio of price per
share to the earnings per share
39
Definitions
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Low offer – the lowest price which investors who
wanted to sell were willing to accept
High Bid – the highest price that investors were
willing to pay to acquire the share
Last Price – the price at which the last transaction
was conducted
Price Change – is the amount by which the price of
the share changed from the previous session
40
Definitions


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Total shares Offered – the total number of shares
offered for sale during the particular trading session
Total shares bid – the number of shares that
investors were willing to buy
Total shares traded – the number of shares that
changed hands during the trading session
41
The GSE All-Share Index
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
In Ghana, the overall performance of the market is
measured by the GSE All-share Index. The index is a
market capitalization index of all shares listed on the
Ghana Stock Exchange.
GSE All-Share Index = Total Market Capitalization * 100
Base Period Total Market Cap.
The base period market capitalization is the average
capitalization of the market for the 12 period November
1990 to 30 December 1993. The value of the index for
the base period is set to 100.
42
GSE ALL-SHARE INDEX SUMMARY
YEAR
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
YEAR-END
70.08
64.51
62.17
132.88
298.1
316.97
360.76
511.74
868.35
736.16
857.98
%CHANGE
-7.95
-3.63
113.74
124.34
6.33
13.82
41.85
69.69
-15.22
16.55
43
DERIVATIVES
An Introduction
44
Derivatives (What are They)

Derivative- A security or other financial
instrument whose value derives from the
value of one or more other assets, usually
termed “underlying assets” or simply “the
underlying”.
45
Derivatives (What are They, Cont’d))

These underlying assets include:



(i) financial assets such as foreign exchange,
interest bearing securities, equities and stock
(ii) commodities, such as oil, gold, cocoa, food &
power; & intangible assets that can be valued,
such as copyrights & patents.
Derivatives are also called “Contingent
claims”
46
Derivatives (What are They, Cont’d))

Serve as risk management tools to protect against
unexpected movements in exchange rates, interest
rates, commodity prices and other price
movements. In other words, it can be used to:






Manage
Manage
Manage
Manage
interest rate risk.
currency risk.
commodity price risk
equity price risk.
Banks can earn fee income by providing riskmanagement services to others.
Investors can speculate as to the movement of
interest rates or exchange rates for a profit.
47
Derivatives (What are They, Cont’d))

The most commonly traded derivatives
are:



Forwards
Futures
Options
48
Markets for trading Derivatives

Derivative contracts are created on
and traded in two distinct but
related types of markets:
 Exchange-traded
 Over-the-counter (OTC).
49
Markets for trading Derivatives (Cont’d)

Exchange-traded derivatives such as futures
contract and some options:


Have standard terms & features & are traded on
an organized exchange trading facility referred to
as a futures exchange or an options exchange.
These exchanges set & enforce trading rules &
are affiliated with clearinghouses that guarantee
the performance of traded derivatives
50
Examples of Global Derivatives Exchanges

North America
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America Stock Exchange
New York Stock Exchange
Chicago Board Options Exchange
Chicago Board of Trade
Chicago Mercantile Exchange
International Securities Exchange (New York)
New York Board of Trade
New York Mercantile Exchange
51
Examples of Global Derivatives Exchanges (Cont’d)

Europe



London International Financial Futures & Options
Exchange
London Metal Exchange
International Petroleum Exchange of London
52
Examples of Global Derivatives Exchanges (Cont’d)

Asia
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Hong Kong Exchanges & Clearing
Korea Futures Exchange
Malaysia Derivatives Exchange
New Zealand Futures & Options Exchange
Osaka Mercantile Exchange
Tokyo Grain Exchange
Tokyo International Financial Futures Exchange
53
Examples of Global Derivatives Exchanges (Cont’d)

Africa


South African Futures Exchange (founded 1990)
Abuja Securities & Commodities Exchange
(founded 2001)
54
OTC Market for Derivatives


Technically we cannot identify where OTC
derivatives markets exist.
These types of transactions can conceivably
occur anywhere two parties can agree to
engage in a transaction.

These parties consists of major international
commercial and investment banks that act as
dealers or market makers, standing ready to
enter into derivative transactions over the
telephone at their clients’ request.
55
OTC Market for Derivatives (Cont’d)

With OTC contracts, there is no exchange to
enforce trading rules or to guarantee that the
parties to the agreement will fulfill their contractual
obligations.


Gives rise to counterparty credit risk-risk that one of the
parties to the contract (a counter-party) might fail to fulfill
its contractual obligations.
The distinction between OTC and exchange traded
derivatives, therefore, lies in the way they are
traded and the way counterparty credit risk is
handled.
56
OTC Market for Derivatives

(Cont’d)
London & New York are the primary markets
for OTC derivatives; considerable activity also
takes place in Paris, Chicago, Amsterdam, &
many other major world cities.
57
Forward Contracts


Imagine you are a farmer. You grow 1,000 dozens of
oranges every year. You want to sell these oranges
to a merchant but you are not sure what the price
will be when the season comes. You therefore agree
with a merchant to sell all your oranges for a fixed
price of GH¢2,000.
This is a forward contract wherein you are the seller
of oranges forward and the merchant is the buyer.
The price is agreed today in advance & the delivery
will take place sometime in the future
58
Forward Contracts (cont’d)


A binding contract (agreement) between two
parties to buy and sell a particular amount of a
particular asset The agreement commits seller to make
delivery, & buyer to accept & pay for delivery a
given quantity of an asset on a specified future
date for a stated price.
Historically, developed to enable farmers to sell
their harvests ahead of time to avoid price
fluctuations; consumers could also fix their costs
59
Forward Contracts (Cont’d)
Parties negotiate terms of the contract including:





Quantity
Quality
Price
Delivery (where/when)
An advantage of the forward contract is
that it is flexible & can be customized to
suit a party’s need. A disadvantage is that
it is difficult to find a counterparty
60
Essential features of a Forward
Contract






Contract between two parties (without any exchange
between them)
Price decided today
Quantity decided today (can be based on
convenience of the parties)
Quality decided today (can be based on convenience
of the parties)
Settlement will take place sometime in future (can be
based on convenience of the parties)
No margins are generally payable by any of the
parties to the other
61
Where are Forwards used
Forwards have been used in the commodities
market;
 Forwards are also widely used in the foreign
exchange market;
There is no active forward currency market in
Ghana.

62
Limitations of Forward Contracts



Lack of liquidity – terms of contract are
uniquely negotiated between buyer and seller;
difficult to sell contract to a third party
Difficulty in enforcement – Either party may
fail to perform under the terms of the contract
Counter party risk (Default risk/Credit risk) –
Either party may be unable or unwilling to
complete the bargain e.g. farmer’s crop may
be inadequate to fulfill contract terms.
63
Futures Contract


Futures are similar to forwards in the sense
that the price is decided today and the delivery
will take place in future. But futures are quoted
on an exchange. Prices are available to all
those who want to buy or sell because the
trading takes place on a transparent computer
system.
A futures contract is an agreement to buy or
sell an asset at a certain time in the future for a
certain price.
64
Futures Contract

Similar to forward contract except that there is
standardization rather than negotiation with
respect to:




Asset and grade (e.g. a futures contract on gold will
specify a particular fineness)
Quantity (number of grams, metric tons, or other
unit of measure)
Time and place of delivery
Only price is not standardized; determined by
market competition between buyers and sellers
65
Futures Contract (Cont’d)



Traded on organised exchanges rather than
through OTC dealers.
Delivery and payment are guaranteed by a
clearing organization which is the counter party
to all transactions. if either party were to
default on its obligation the clearing
organization would ensure that the other party
was not damaged as a result.
Many futures contracts are closed prior to
delivery
66
Advantages of Futures Contracts


Traded on an exchange, which means
high liquidity
Delivery and payment are guaranteed by
a clearing organization which is the
counterparty to all transactions
67
Participants in the Futures Markets

Hedgers - A participant who uses derivatives to
reduce his exposure to adverse movement in the
price of the underlying


E.g. Tema Oil Refinery buys oil futures contract in
anticipation of future price increases
Speculators


A participant who takes risk by buying derivatives in
anticipation of favourable movement in the price of
the underlying
E.g. a trader who believes commodity price or interest
rates would move in a favourable direction
68
Participants in the Futures Markets (cont’d)

Speculators

To provide liquidity there must be participants in
the futures market other than the hedger. There
would be no guarantee that at the time a hedger
wants to either open or close a futures contract
there would be another hedger ready to take the
other side of the transaction. Every futures
market will have “speculators” who do not have a
need to buy or sell the asset as part of a business,
but who rather choose to take the risk of a
contract in the hope of making a large profit. 69
Participants in the Futures Markets (cont’d)





Illustration
Kofi has been watching the wheat market for some
time, and is convinced that prices will be rising in the
near future. On 1 December 2001 he buys a wheat
futures contract for 20 metric tonnes of wheat for
delivery on 1 December 2002, at a price of ¢350,000.
Six months later wheat prices have indeed risen, and
Kofi is able to close his position out by selling the
contract at a price of ¢400,000 per metric tonne.
1 Dec 2001: Buy wheat @ ¢350,000
1 July 2002: Sell one wheat @¢400,000
Profit = ¢50,000 per tonne x 20 tonnes = ¢1,000,000
70
Participants in the Futures Markets (cont’d)

The majority of participants on any futures market
are speculators, and trading by speculators provides
the largest amount of volume. Hedgers benefit by
this activity, as speculators provide:


price discovery. Speculators will have an incentive to
gather all available information, which they will factor, into
their decisions. Through the competitive buying and selling
of speculators, this information is converted into a price
which is readily available to any interested party.
liquidity. Speculators will compete to take the contra side
of a hedger’s trade. This tends to ensure that the hedger
is getting the best available price.
71
Options


In a forward or futures, the parties to the
contract have committed to buy or to sell at
some date in the future. The parties are
therefore expected to deliver or receive and
pay.
Option is similar to forward and futures, one
significant difference is that the holder of the
option has the choice to make or take
delivery.
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Options


Gives the purchaser/holder the right but not the
obligation to buy or sell an asset for a specified price
called exercise or strike price on or before some
specified expiration date.
Option contract terms specifies:


Asset, Quantity, Price, Time, Fee Paid (Option Premium)
standardized options contracts are traded on many
financial exchanges throughout the world. Here
terms of the contract with exception of the premium
are determine by the Exchange. The premium is
determined by competition on the exchange.
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OPTIONS

With a non-standardized options or OTC
options all contract terms including the
premium are negotiated between the
parties. Like the forward contract there
is a limitation about liquidity, difficulty
in enforcing the terms of the contract
and the risk of default by the counter
party to the contract.
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Terms of Option Contract





Quantity – how many shares or other units per
option
Asset- “the underlying”
Exercise/Strike Price – The price at which an asset
may be bought or sold in an option contract.
Expiration Date or Maturity – End of life of a
contract. After expiration, unexercised options
expire and are valueless
Option PREMIUM – what it costs to acquire the
option.
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TYPES OF OPTIONS


Call Option – gives its holder the right but not the
obligation to purchase an asset for a specified price,
called exercise or strike price on or before some
specified expiration date.
Put Option – gives the holder the right but not the
obligation to sell a security at an agreed price up to a
date in the future

Generally, puts are purchased by those who think a
price may go down; calls are purchased by those
who expect a price increase.
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Parties to an Option Transaction



The holder - (who gains the right by
establishing a position with the purchase of a
call or put
The “writer” (who accepts the obligation to
buy or sell the underlying at the prerogative
of the holder)
Like futures, option can be used for either
hedging or speculative purposes
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Forms of Option Transaction

American Option:


The holder can exercise an “American” style
option at any time after purchase of the contract,
up to expiry.
European Option:

A “European” style option can be exercised only
at expiry.
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Call Purchase
A buyer of a call hopes the price of the underlying will increase
in value. If the price of the underlying increases above the
sum of the strike price plus the premium paid for the call, the
call buyer will profit. Using the illustration above for shares of
Damongo Enterprises:
Purchase Call
¢25
Exercise and buy shares
¢250
Total Cost
¢275
Represents “break-even” point; shares must trade in excess of
¢275 for the deal to be profitable.
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Call Purchase (Cont’d)
Assume increase in price to ¢500.
•Total cost=¢25+¢250=¢275
•Selling price=¢500,
•Profit=¢500-¢275=¢225 per share
Note that maximum gain is unlimited, but maximum
loss is ¢25 (call premium), if price remains below
¢250 through expiration
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Call Purchase (Cont’d)
Call buyer:
•Maximum gain: Unlimited
•Maximum loss: Premium
•Break-even point: strike price +
premium paid
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Call Purchase (Cont’d)
Call Writer:
•Profits if share price decreases
substantially prior to expiry
•In the illustration above, call writer
makes a loss of ¢225:
¢250+¢25 – (¢500)
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Call Purchase (Cont’d)
Call Writer:
•Maximum gain: premium
•Maximum loss: unlimited
•Break-even point: strike price +
premium
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GHANAIAN SITUATION

No OTC or exchange traded
derivative products on offer at the
moment be it in agricultural
commodities, minerals or financial
assets
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GHANAIAN SITUATION (Cont’d)




Ghana COCOBOD engages in forward contracts of
cocoa
AGC in the 1990s was known to have profited from
buying put options.
GNPC was also engaged in oil swaps to insulate
itself from higher world oil prices.
SCB Ghana Limited through its Global markets
division engages in OTC derivatives in the
international financial market However, SCB Ghana
is responsible for the marketing of the products and
is not traded locally. Thus they are not exposed to
any risk. Trades are booked directly with SCB
London.
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LIFE IS FULL
OF
DERIVATIVES
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