2(a). The spot exchange rate between GHS and the Danish kroner is GH 1 = 2 kroner. Assuming that there is now purchasing parity, an amount of commodity costing GHS220 in Ghana will cost 440 kroners in Denmark. Over the next year, price inflation in Denmark is expected to be 5% while inflation in Ghana is expected to be 8%. What is the 'expected spot exchange rate' at the end of the year? (b). Cato, a Moldovan company, needs a one-year loan of about 50m (MDL). It can borrow in MDL at 10.80% pa but is considering taking out a GHS loan which would cost only 6.56% pa. The current spot exchange rate is GHS 5.1503/MDL. The company has decided to borrow GHS 1Om at 6.56% per annum. Converting at the spot rate, this will provide MDL5l.503m. Interest will be paid at the end of one year along with the repayment of the loan principal. Assuming the exchange rate moves in line with interest rate parity, you are required to show the values of interest paid and the repayment of the loan principal. Compute the effective interest rate paid on the loan in MDL