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Q1: Assume that you are Turkish lira (TL) based investor and has 5,000.000 TL.you are planning to make an investment in money markets and have
Q1: Assume that you are Turkish lira (TL) based investor and has 5,000.000 TL.you are planning to make an investment in money markets and have two options: (a) you can invest in TL securities giving you 7.5% per anum; or (b) you can invest on USD based securities giving you 1.75% per anum. Exchange rate for the moment is 8.25 TL/USD. Please answer the following questions; a) What will be the profit in both choices for 3 month-forward contracts? b) Is there interest rate parity (IRP) or covered interest arbitraging? How? c) If there is no interest rate parity between these two markets then what should be the equilibrium 3-months forward rate to reach RP between two markets
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