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Interest rates in Turkey are currently 8.25% p.a. and in Germany interest rates are currently offered at a negative 0.5% p.a. The Euro currently trades

Interest rates in Turkey are currently 8.25% p.a. and in Germany interest rates are currently offered at a negative 0.5% p.a. The Euro currently trades at EUR/TRY 8.73. Given the current spot rate of EUR/USD 1.18 and an annualised forward premium of 0.85% p.a. for the EUR against the USD, generate a forecast of the value of the USD in terms of Turkish Lira (TRY) for 2 years time. Which equilibrium relationships are you using to generate this forecast? Show all workings.

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