Assessing Spot and Forward Rates in Turkey

1. Obtain a quotation for the spot rate of the Turkish lira (that you will receive from your business) from the bank where you intend to conduct your foreign exchange transactions. Then, obtain a quotation for the spot rate of the foreign Turkish Lira from another bank. Does it appear that the spot rates are aligned across locations at a given point in time?

2. Obtain a quotation for the one-year forward rate of the Turkish Lira from the bank where you intend to conduct your foreign exchange transactions. Then, use a business periodical to determine the prevailing one-year interest rates in the United States and the foreign country of concern. Does it appear that interest rate parity exists?

3. Review the data on forward rates from The Wall Street Journal or another source to determine whether the Turkish Lira typically exhibits a discount or a premium. Then review data on interest rates to compare the Turkish and the U.S. interest rates. Does it appear that the forward rate of the foreign currency exhibits a premium (discount) when its interest rate is lower (higher) than the U.S. interest rate, as suggested by interest rate parity?