2. Suppose that PPP holds between Turkey (the home country) and the euro area (the foreign, starred country), so that in logs: st+p; pt =0. Also suppose that UIP holds. Money demand in Turkey is given by: my Py = 0.5it, and in the euro area by my; p; = 0.5i;. (a) Derive the fundamental equation of the monetary model of the exchange rate. (b) Suppose that the relative money supply in logs is given by z; = m; m;, and that Ty = 0.5+ Ty_1 + , where ; is white noise with mean zero. Solve for the exchange rate s; in terms of the current value of x;. (c) Find expressions for the international interest differential and also for f;, the log of the one-period-ahead forward rate