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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
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 trillion between these two nations. The yearly total value of
trade transactions is approximately TSH billion. As an international cash manager for a
firm exporting goods to Kenya, your task involves forecasting the movement of Kenyas
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 of
a A sudden substantial increase in Tanzanian inflation while Kenyas inflation remains
low.
b A substantial increase in Tanzanian interest rates while Kenyas interest rates remain
low, attracting investors from both countries to higher rates.
c A substantial increase in Tanzanias income level while Kenyas 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
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