Question 16

1. Suppose the interest rate on the pound is 15% in London and the interest rate on the comparable Tanzania shillings investment is 10%. The pound spot rate is TSH 2400 and the one year forward rate is TSH 2100

Required

1. 1. Are there covered interest arbitrage? Show relevant computation
   2. Is the covered interest differential in favour of London or DSM? (For calculations assume 1 million units of currency can be borrowed and invested)
2. An investor wishes to invest usd 1,000,000 for 90days. He can do so in the US at 7.5% per annum or in Canada at 6& per annum. The spot rate is Canadian dollar 1, 5311 per US dollar and the 90 day forward rate is Canadian dollar 1.5236 per US dollar. What would you advice the investor