QUESTION ONE

Suppose in Tanzania the interest rate is $9\%$ and inflation is expected to be $4\%$ meanwhile

the expected inflation rate in Uganda is $12\%$ and the Kenyan interest rate is $15\%.$

Required:

$($i$)$ To the nearest whole number, what is the best estimate of the one year for$-$ward

exchange rate premium $/$ discount at the KES will be selling relative to UGS?

$($ii$)$ Suppose the current KES value of UGS is KES $0\mathrm{.}60.$ Estimate the KES value of

UGS one year hence

$($iii$)$ Suppose the spot TZS value of the KES is TZS $20,$ calculate the number of UGS

that you may exchange for one TZS spot.