Question

Question 2 a. How can the Bank of Ghana use indirect intervention to change the value of the Ghana Cedi upwards or downwards? (10 Marks) b. Assume there is concern that the Ghanaian economy may experience a recession. How should the Bank of Ghana influence the Ghana Cedi to prevent a recession? How might Ghanaian exporters react to this policy (favorably or unfavorably)? What about Ghanaian importing firms? (10 Marks)

Answer 1

Q2.a. The common indirect monetary tools for the bank of Ghana are open market operations, reserve re-quirements, and central bank lending facilities.

The bank of Ghana can increase or decrease reserve requirements for banks in Ghana to control currency circulation in the market. It can also buy or sell bonds/currencies in open market operations.

Q2.b. In case of recession, the bank of Ghana can reduce the repo rate of Ghana cedi, so the interest rate will be lower for businesses and households and they will borrow more to purchase more. So, there will be more demand and the economy will recover.

Exporters will react favorably as Ghana cedi will depreciate and their exports value will increase. On other hand, importers will dislike as they will have to pay more for same goods.