1. The Turkish lira (TRY) was officially devalued by the Turkish government in February 2001 during a severe political and economic crisis. The Turkish government announced on February 21 that the lira would be devalued by 20%. The spot exchange rate on February 20 was TRY68,000=1USD.

a. What was the exchange rate after the 20% devaluation?

b. Within three days the lira had plummeted to more than TRY100,000/1USD. What percentage change was this from the pre-devaluation rate?

c. Evaluate why the value of the TRY was different from the 20% devaluation sought by the government.

2. Assume that a call option on EUR is written with a strike price of USD1.25/EUR at a premium of 3.80 US cents per euro (USD0.038/EUR) and with an expiration date three months from now. This option is for EUR100,000. Calculate your profit or loss should you exercise before maturity at a time when the EUR is traded spot at:

a. USD1.10/EUR

b. USD1.18/EUR

c. USD1.25/EUR

d. USD1.32/EUR

e. USD1.35/EUR

f. USD1.43/EUR