1) Assume Turkish lira (TL) is expected to depreciate by 10% over the next year against US dollar. If the Turkish interest rate is15%, what would be the US interest rate that can make a Turkish investor to be willing to buy US securities today? Assume capital is perfectly mobile between Turkey and US.

Purchasing-power parity (PPP) theory states that exchange rates would need to equalize the prices of goods in any two countries. For the dollar price Activity Frame o be the same in both countries, a U.S. citizen would need to be able to convert $5.74 into exactly GBP 3.29. To find the exchange rate at which hamburger purchasing power is the same in both countries, divide the price in the United States by the price in the United Kingdom: PPP Exchange Rate (U.S. Dollars per British pound) = $5.74 GBP 3.29 = $1.74 per pound The exchange rate that would have equalized the dollar price of a Big Mac in the United States and the Euro area (that is, the PPP exchange rate for Big Macs) is . This change would mean that the euro had against the dollar. If Big Macs were a durable good that could be costlessly transported between countries, which of the following would present an arbitrage opportunity? Check all that apply. Exporting Big Macs from the Euro area to the United States Exporting Big…

3. If the exchange rate changes from 1.50 Canadian dollars per U.S. dollar to 1.67 Canadian dollars per U.S. dollar, we say that the Canadian dollar has appreciated against the U.S. dollar. True False

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