-Consider that a basket of goods in Johannesburg is worth ZAR 15,000 (15000 rands) while the same basket of goods is worth K25, 000 (25,000 kwacha) in Zambia. A check for the displayed exchange rates at one of the FnB branches in Lusaka revealed that ZAR1 (1 rand) can be exchanged for K0.86. Based on the foregoing establish the nominal exchange rate and the real exchange rate between the kwacha and the rand. Comment on your estimates in the face of international trade between Zambia and South Africa
Question Three
-Consider that a basket of goods in Johannesburg is worth ZAR 15,000 (15000 rands) while the same basket of goods is worth K25, 000 (25,000 kwacha) in Zambia. A check for the displayed exchange rates at one of the FnB branches in Lusaka revealed that ZAR1 (1 rand) can be exchanged for K0.86. Based on the foregoing establish the nominal exchange rate and the real exchange rate between the kwacha and the rand. Comment on your estimates in the face of international trade between Zambia and South Africa
-Using your knowledge of the term structure of interest rates, demonstrate that the assertion “the interest rate on a long-term bond will equal an average of the short-term interest rates that people expect to occur over the life of the long-term bond ” holds.
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