INTERNATIONAL ECONOMICS

a) Central Bank of Republic of Turkey decided to increase policy interest rates from 17 % to 19 %. Using the asset approach show how this policy is expected to influence the value of Turkish lira. Show your answer on a graph as well.

b) Evaluate the effect of the policy described in part (a) on real exchange rate and expected real interest rate.

c) Considering the inflation and interest differential between the US and Turkey, what is likely to happen to real exchange rate in Turkey? Calculate and show your answer.

d) Based on the recent developments in TL/dollar exchange rate, discuss what is likely to happen to Turkeys current account balance? Why? Discuss using the concepts we have discussed during the lectures

Everything is clear please help with your own words.