ABC Ltd is foreign subsidiary of cadbury's that is based in Kenya and as at 30th June 2016 the firm showed the following balance sheet when the exchange rate was Kshs

$Million

Non-current assets

Accounts receivable

Inventory

Cash and bank

Bank overdraft

Accounts payable

Long term loan

Ordinary share capital

6,000

2,000

6,300

4,500

18,800

600

3,000

5,400

9,800

18,800

Required:

Translate the balance sheet of ABC Ltd using

Current/non-current method (5 Marks)

Current rate method (5 Marks)

The beginning of year consumer price index (CPI) of Kenya and Uganda as follows: in Kenya 167 and in Uganda 158. After 2 years the CPI in Kenya is expected to be 180 while in Uganda it is expected to be 165. The spot rate between the two countries is Ush33.1./ksh

Required:

Compute the inflation rates in Kenya and Uganda

Determine the future rate (5 Marks)

Suppose the interest rates in Kenya are 12% and in Tanzania are 15% while the spot rate is Tsh 21.7/ks

Required:

Compute the expected spot rate and the end of 2 years (3 Marks)

Distinguish between international fisher effect and interest rate parity (2 Marks)