1. As of March 18, 2009, the exchange rate between the Turkish Lira and U.S. dollar is YTL1.70/$. The consensus forecast for the U.S. and Turkey inflation rates for the next 1-year period is 1.3% and 8.5%, respectively. How would you forecast the exchange rate to be at around March 18, 2010? What is the expected rate of change in exchange rate?

a. Using the approximation formula

b. Using the exact formula

2. If the nine-month forward rate F9(Y/$) = 82, and the expected annual inflation rate in the U.S. and Japan are 1.6% and -0.8% respectively, what should be S(Y/$)?

3. If the 3-month CD rate is 1.2% (annual) in Thailand and if the expected annual inflation is 5.7%, what is the real annual interest rate?