Date: 1 January 2020: Suppose you are a fund manager in London with spare $1million for the coming 3 months

3 months TL interest rates = 20% or 0,2

3 months Eurodollar LBOR=3% or 0,03

Thus since TL pays a higher interest rate our fund manager decides to invest in Turkish Liras

Spot: 1 USD = 6.00 TRY

Thus our fund manager purchases: 6.000.000 TL (Formula: 1000000*6.00)

Deposits that sum in a TL account for 3 months

on 31 March 2020 our fund manager will have: 6.300.000 TL

a) Suppose on 31 March 2020 the spot dollar/TL exchange rate is 6.3 TL per dollar. In dollar terms is our fund manager better off compared to staying in Eurodollars? (Show your calculations)

b) Suppose on 1 January 2020, our London fund manager in addition to investing in TL paying asset, sells her/his future Turkish liras forward for 6.25 TL per dollar. Comes 31 March 2020. In dollar terms is our fund manager better off compared to staying in Eurodollars? (Show your calculations)