Question $20$

ABC Plc$,$ Dased in Mbeya Tanzania, needs to borrow US$$50$ million for one year to finance a project in December, $2014.$ ABC Plc can borrow in US dollars at $13\%$ or in Tanzania shillings at $9\%.$ Currently, the exchange rate is TZS$\mathrm{.}1,550/$US$$.$

Required:

a$)$ Briefly explain what the difference in the interest rates implies about markets' expectation in change in the values of the two currencies.

b$)$ Estimate the exchange rate at the end of the year that will make ABC Plc indifferent between borrowing in US dollars and Tanzania shillings.