Makinikia Company a Tanzanian investor invested Tshs. 1,734,000 in a 9% KShs. 1,000 Kenyan Government bond during the year 2003. This bond’s market value changed from KShs. 1020 to KShs.1060 during the year. The Tanzanian inflation rate averaged 20% while that of Uganda averaged 9%. The exchange rate between TSh. And KSh. changed from TShs.10 to TShs.11 and the market value of a 19% TShs10,000 Tanzanian government bond changed from TShs. 17,340 to TShs18,000 during the same period.

REQUIRED:

i) Assuming the Tanzanian investor held the Kenyan Government bond for one year, what would be the total return in both amounts (Tshs) and in percentage?

ii) What is the best estimate of the one-year forward premium or discount at which the Kenyan Shilling was selling relative to the Ugandan Shilling (Ush.) at the beginning of the year 2019 (round it to the nearest whole number)

iii) If the initial (at the beginning of year 2019) exchange rate for the Tanzanian Shilling (TSh.) was Ushs.3.72/Tsh, calculate the Ush. Value of the TSh at the end of the year 2019. (Assume the IFE holds)