1) Suppose Air France receives the following indirect quotes in New York: 0.92 - 3 and 0.63 - 4. Given these quotes, what range of / bid and ask quotes in Paris will permit arbitrage?

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a) If expected inflation is 8 percent and real required return is 5 percent, what will the nominal interest rate be according to the Fisher effect?

b) The inflation rates in the U.S. and France are expected to be 4% per annum and 7% per annum, respectively. If the current spot rate is $.1050, what is the expected spot rate one year from now?

1. Answer the following questions using the information given in the table below; Annual Interest Rate Exp. Annual Inflation Rate Turkey 10% 796 USA 396 196 a. The current spot rate is $ 0.4762/TL. Using PPP (Purchasing Power Parity), what is your projection of the value of TU$ one year from now? b. Does Real Interest Parity (International Fisher Effect) hold? Answer this question by calculating and comparing the real interest rate in each country. c. What is the 1-year forward premium/discount for TL against $