1. There are three currencies: Turkish lira (8), Euro (e), and American dollar ($). at the moment, the values of the exchange rates areE$/8= 0.2, andEe/8= 20.

(a) In the absence of arbitrage opportunities, what is the impliedEe/$? (b) What series of transactions could fetch you a profit ifEe/$= 110?

1. Suppose that the 6 month forward rate isF$/8= 0.8and you expect the spot rate 6 months from now to be atEe= 1.3. Can you use the forward to make a profit?
2. Suppose a 1 year deposit has a local current interest rate of8%in Europe and10%in the United States. The current spot rate isE$/e= 1.25If covered interest parity were to hold, what should the 1 year forward rate be?