Ghana's inflation is forecasted to be 10.5% over the coming year whilst that of South Af rica is

forecasted to be 4.50%. The current exchange rate between Ghana Cedi and the South Af rican

Rand is 0.38 ZAR per 1 GHS.

i. How should we quote the exchange rate between Ghana Cedi and the South African Rand

(ZAR) in a year's time to avoid arbitrage?

ii. A Ghanaian company is importing goods worth ZAR 60m in a year's time, how much

GHS will the company require to import the goods?

iii. If the actual rate at the end of the year is 0.43 ZAR per 1GHS, what is the absolute

forecast error for the forecast in (i)?

b) Distinguish between Absolute form Purchasing Power Parity (PPP) and Relative form

Purchasing Power Parity (PPP) theories. (