Suppose Tanzania heavily invests in government and corporate securities of Kenya, while

residents of Kenya also invest significantly in Tanzania, resulting in annual investment

transactions of about TSH $2$ trillion between these two nations. The yearly total value of

trade transactions is approximately TSH $800$ billion. As an international cash manager for a

firm exporting goods to Kenya, your task involves forecasting the movement of Kenya$$s

currency, the $$KSH$,$ against the Tanzanian shilling.

REQUIRED;

Explain how the following conditions, while holding other factors constant, will impact the

value of the KSH$,$ and then aggregate these impacts to formulate an overall forecast for the

KSH movement against the Tanzanian Shilling:Page $2$ of $2$

a$)$ A sudden substantial increase in Tanzanian inflation while Kenya$$s inflation remains

low.

b$)$ A substantial increase in Tanzanian interest rates while Kenya$$s interest rates remain

low, attracting investors from both countries to higher rates.

c$)$ A substantial increase in Tanzania$$s income level while Kenya$$s income level stays

unchanged.

d$)$ The expectation of a small tariff imposed by Tanzania on goods imported from Kenya.

e$)$ Combine all anticipated impacts to create an overall forecast for the movement of the

KSH against the Tanzanian shilling