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You can use interest rate parity to answer this question. A U.S. investor has a choice between a risk-free one-year U.S. security with an annual
You can use interest rate parity to answer this question. A U.S. investor has a choice between a risk-free one-year U.S. security with an annual return of 3%, and a comparable Turkish security with a return of 25%. If the spot rate is 18.6 TL/$, the forward rate is 24.4 TL/$, and there are no transaction costs, where should the investor invest, in Turkey or in the U.S.? Please explain.
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