Currently the spot exchange rate is TZS$/$$ and the three months forward exchange rate

is TZS $2,500/$$$.$ The month interest rate is $8\%$ per annum in Tanzania and $5\mathrm{.}8\%$ per

annum in US$.$ Assume that you can borrow as much as TZS $24,000,000$ or $ $9,600.$

Required:

$($i$)$ Evaluate whether the interest rate parity is currently holding

$($ii$)$ If the interest rate parity is not holding how you would carry out covered interest

arbitrage? Show all the steps and determine arbitrage profit

$($iii$)$ Explain how the interest rate parity willy restored as a results of covered arbitrage

activities