(a)The beginning of year consumer price index (CPI) of Kenya and Uganda as follows: in Kenya 167 and in Uganda 158. After 2 years the CPI in Kenya is expected to be 180 while in Uganda it is expected to be 165. The spot rate between the two countries is Ush33.1./ksh

Required:

i.Compute the inflation rates in Kenya and Uganda

ii.Determine the future rate (5 Marks)

(b)Suppose the interest rates in Kenya are 12% and in Tanzania are 15% while the spot rate is Tsh 21.7/ks

Required:

Compute the expected spot rate and the end of 2 years(3 Marks)

(c)Distinguish between international fisher effect and interest rate parity (2 Marks)

Answer rating: 100% (QA)

a i Compute the Inflation Rates Inflation Rate ... View the full answer