The Turkish Lira spot exchange rate is currently at 0.27$/Lira.

The 1 year forward exchange rate on Lira is 0.2445$/Lira.

The 1 year interest rate in Turkey is 11.5%

The 1 year interest rate in the U.S. is 1.5%.

1.According to the Interest Rate Parity condition, what is the 1 year forward exchange rate? Is there an arbitrage opportunity? Why?

2.If yes, what are the arbitrage profits per 1 million Turkish Lira? Show the arbitrage strategy and calculation steps.

3.What is the expected spot rate in 1 year? Explain which two international parity conditions you could use to reach this result.