Institute of Bankers of Zimbabwe
Treasury Management II
October 2018
Instructions
Answer any four questions. Each question carries 25 marks and full marks will only be
awarded for well-presented responses that include relevant examples from the
Zimbabwean financial services sector where applicable.
Time allowed: 3 hours
………………………………………………………………………………………………
Question 1
Zimbabwe adopted the multicurrency system in 2009 as a panacea for the currency crises
which had ravaged the country.
a) Although the multicurrency system worked well in the early stages currency crises
has surfaced again. What are the causes of the current currency challenges in a
multicurrency economy? (10 marks)
b) Explain the remedies available to resolve the current currency challenges from a
Banking or Treasurer’s perspective. (15 marks)
[Total 25 marks]
Question 2
a) What is the difference between an interest rate gap and a liquidity gap (4 marks)
b) Below is a Financial Position as at 30 June 2018 for Metrobank. There are
assumptions on the spread of the assets and liabilities into different time buckets.
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INSTITUTE OF BANKERS DIPLOMA EXAMINAT
ASSETS TOTAL 1-30 days 31-90 days 91-180 days 181-270 days 271-365 days Over 1 year
Cash in hand 300
Gov't Securities 1 000 0% 0% 20% 20% 30% 30%
Investment securities 800 0% 0% 13% 25% 25% 38%
Pacements to Banks 5 400 7% 15% 19% 43% 17% 0%
Loans & Advances to Customers 15 500 1% 3% 3% 3% 30% 61%
Fixed & Other Assets 200
TOTAL ASSETS 23 200
LIABILITIES
Amounts Borrowed from Banks 400 25% 25% 50% 0% 0% 0%
Demand Deposits 7 500 13% 27% 27% 13% 13% 7%
Savings Deposits 4 300 0% 5% 9% 5% 12% 70%
Time Deposits 9 600 0% 13% 2% 2% 31% 52%
Bonds & other Negotiable Instruments 1 200 0% 8% 8% 8% 75% 0%
Shareholder Equity & Other liabilities 200
TOTAL LIABILITIES 23 200
Gap
Cumulative Gap
Using the provided assumptions and in dollar amounts calculate the periodic assets
and liabilities in each time bucket, periodic gap and the cumulative gap. (14 marks)
c) Explain your rationale for assumptions on Fixed & Other Assets and the Shareholder
Equity & Other Liabilities. (4 marks)
d) What is the advantage of demand deposits over time deposits (3 marks)
[Total 25 marks]
Question 3
The Black-Scholes (B/S) Option Pricing Model makes certain assumptions in order to
achieve pricing convergence. List and explain the significance of each assumption in option
pricing as well as its relationship to the price. (10)
Given the following information on the Econet share as at 31 August 2018, what is the call
and put option price on the same date using the B/S Model. (15)
Econet Stock Price as at 31 August 2018 (P) 560
Exercise Price of Option (EX) 560
Number of periods to Exercise in years (t) 5
Compounded Risk-Free Interest Rate (rf) 5,00%
Standard Deviation (annualized s) 62,00%
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INSTITUTE OF BANKERS DIPLOMA EXAMINAT
Question 4
a. You are anticipating adverse movements of the ZAR against the USD, and you want
to hedge a payment of a bill of ZAR7,600,000. The day is 3 September 2018, and you
project that by 28 February 2019 the rate will have gone up by 25%. The following
information was available from your bank:
Spot rate ZAR/$ : 15.20
ZAR Interest rate was, rZAR: 12%
USD Interest rate r$ : 2%
All workings should be to the nearest 2 decimal places.
i. Explain a forward contract. (3 marks)
ii. Calculate the forward rate for 28 February 2019 (4marks)
iii. According to your projection, what will be the rate? (2 marks)
iv. How much will you pay for a forward contract of 28 February 2019? (2 marks)
v. What will be your loss or saving if you enter into the forward contract now?
(assuming that the bill has to be paid by 28 February 2019) (4 marks)
b. As a dealer you are perpetually short of USD for the current period, however you
have a ZAR152 million long position. You anticipate that in 6 months’ time you will
be liquid in the USD. You want to swap your ZAR for Dollars and thereof get them
back after six months. Assuming the spot rate is ZAR15.2/USD and the future rate is
ZAR15.90/USD.
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INSTITUTE OF BANKERS DIPLOMA EXAMINAT
i. What is your understanding of the term ‘swap’? (2 marks)
ii. Explain any two uses of swaps. (2 marks)
iii. What will be the net payment of the transaction? And in whose favour? (3 marks)
iv. What other options does the dealer has? (3 marks)
[Total 25 marks]
QUESTION 5
As a dealer of a leading bank in Zimbabwe, you have excess USD. Write a proposal in a
memo format to your Head of Treasury on the investment options that you would like to
undertake. In the memo, explain the following products:
i. Repurchase agreement and with an example of how it works. (4 marks)
ii. Treasury bill and how it operates (4 marks)
iii. Bankers acceptance and how it works (4 marks)
iv. Briefly explain any three other options that are available. (6 marks)
v. Make a recommendation, with supporting fact(s), on which product you will want to
engage first. (2 marks)
[Total 25 marks]
The End
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