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QUESTION Mr Niama Moyo is a famous Tanzanian businessperson who owns MTEPE LTD Company that deals with importation and exportation of different products across the globe. The company has recently ordered first class products from China, USA, Germany and the UK which are intended to be exported to Kenya and Uganda once received. The details of the products ordered is as shown in the below table: Supplier Product Name Quantity Purchase cost WANG LTD Renova Phone 10.000 334,000% JUMBO LTD Jumbo Phone 2500 430,000E PANG LTD Moto Phone 1,500 390,000 HOLT LTD Mega Phone 800 192.000$ Normally, Mr Njama Moyo purchases the products on 3 months credit to enable him sale the product and repay the creditors but in this time Mr Njama Moyo wants to repay the debt immediately to take advantage of the favourable exchange rates. The ATM Bank has provided the following spot exchange rate quotes for Mr Njama Moyo for immediate delivery Bld Ask Tshs/Yuan 340 350 Tshs/ GBP 2.870 2.890 Tshs/Euro 2,560 2.580 Tshs/USD - 2,280 2.300 UK According to the DSE Market, the following financial data prevails between the countries Borrowing/Lending Interest rates Inflation rates Tanzania 7% 3.5% China 4.35% 2.7% 0.75% 2.0% 25% 1897 USA Germany 0.2% 1.4% Required 21 If the company currently has enough cash to enable cash purchase, how much Tanzanian shilings required to purchase goods in the USA, Germany, China and the UK? (3 Marks) If the company currently does not have enough cash to enable cash purchase hence takes a 3 months credit, how much Tanzanian Shillings will be required to pay for the goods from USA Germany, China and UK suppliers in three months' time? Assume Purchasing power parity holds (3 Marks) Mr Njama Moyo also obtained the following quotes Tshs/ Yuan= 342, Tshs/Euro 2600 and Yuan/Euro = 7 from 3 different banks and wishes to use 1.500.000,000/- shilling to get risk free profit Is there an arbitrage opportunity? If yes how much profit wil Mr Njama Moyo obtain (3 Marks) if Mr Njama Moyo is informed that the exchange rate between Tanzanian Shilling and the pound will increase to 3000 per unit in 3 months time, which currency has appreciated and which one has depreciated and by what per cent? (3 Marks) If Mr Niamo Moyo obtained a Euro forward contract deal for 2.600 Tshs/Euro in three months show how much profit will he make using covered interest rate parity (3 Marks) LI 4 ivo 22 v

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