Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The Central Bank of Tanzania provides the following information i. The exchange rate between Tanzania shilling to USD dollar is 2285Tshs/$, and the exchange rates
The Central Bank of Tanzania provides the following information i. The exchange rate between Tanzania shilling to USD dollar is 2285Tshs/$, and the exchange rates between Tanzania shilling to British pound is 2742 Tshs/ ii. Interest rates Interest rates in Tanzania 9% -8% Interest rates in the USA 8% -7% Interest rates in the UK 5% -4% Required a. If the market also provides the spot rate of dollar to pound as 1.3 $/, is there any currency arbitrage profit? If yes, show how a Tanzanian Investor with 1,000,000 Tshs will benefit from it (3 Marks) b. If the market expects that the USD dollar will appreciate to 2400Tshs/$ in one year time, show how a Tanzanian Investor will benefit out of it using uncovered interest arbitrage (3 Marks) C. If the market provides a one-year forward rate on British pound of 2900Tshs/ and future spot rate after year is expected to be 2800Tshs/ is there any covered interest arbitrage opportunity? If yes, show how an investor can benefit out of it
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started