The six-month interest rate (annualized) in Rwanda and Kenya is 11% and 2% respectively. The current exchange rate is Rwanda Francs (RF) 296.10/Ksh.1 and the six-month forward rate is RF 326.50/Ksh.1.

Required: 

i) Where should a Kenyan investor invest, Kenya or Rwanda? (Show calculations) 

ii) Where should the investor borrow the funds for this investment? 

iii) Is there any arbitrage opportunity in the market? Support your answer with clear workings (you can use hypothetical data)

Answer rating: 100% (QA)

i To determine where a Kenyan investor should invest we need to compare the returns on investment in ... View the full answer