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Suppose the interest rate on is 15% in London, and the interest rate on a comparable Tanzanian shilling investment in Dar Es Salaam is 10%.

Suppose the interest rate on is 15% in London, and the interest rate on a comparable Tanzanian shilling investment in Dar Es Salaam is 10%. The spot rate is TZS1,750 and the one-year forward rate is TZS1,680.

REQUIRED:

i. Are there opportunities for covered interest arbitrage? Show relevant computations. (3 Marks)

ii. Is there covered interest differential in favor of London or Dar Es Salaam? (2 Marks)

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