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1-) One year ago (Dec 2022) the spot rate of Turkish liras for U.S. dollars was TL19/$. Since that time the rate of inflation in
1-) One year ago (Dec 2022) the spot rate of Turkish liras for U.S. dollars was TL19/\$. Since that time the rate of inflation in the U.S. has been roughly 3% and roughly 62% in Turkey. Based on the theory of Relative PPP, calculate what the current spot exchange rate of Turkish liras for U.S. dollars should be. 2-) Compare and contrast the absolute and relative PPP. 3-) The Economist publishes annually the "Big Mac Index" by which they compare the prices of the McDonald's Corporation's Big Mac hamburger around the world. The index estimates the exchange rates for currencies based on the assumption that the burgers in question are the same across the world and therefore, the price should be the same. A Big Mac costs \$5.58 in the United States. Plug a reasonable price for a Big Mac in Istanbul (in liras), and answer the following questions. a) What is the estimated exchange rate of Turkish lira per dollar as hypothesized by the Big Mac Index? b) Discuss whether the Turkish lira at the current exchange rate of 29.2 is overvalued or undervalued according to the Big Mac Index. 4-) Explain the relationship between the currency carry trade and the uncovered interest rate parity. 5-) You can use interest rate parity to answer this question. A U.S. investor has a choice between a risk-free one-year U.S. security with an annual return of 3%, and a comparable Turkish security with a return of 25%. If the spot rate is 18.6TL/$, the forward rate is 24.4TL/$, and there are no transaction costs, where should the investor invest, in Turkey or in the U.S.? Please explain
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