1. As of March 18, 2009, the exchange rate between the Turkish Lira and U.S....
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1. As of March 18, 2009, the exchange rate between the Turkish Lira and U.S. dollar is YTL1.70/$. The consensus forecast for the U.S. and Turkey inflation rates for the next 1-year period is 1.3% and 8.5%, respectively. How would you forecast the exchange rate to be at around March 18, 2010? What is the expected rate of change in exchange rate?
a. Using the approximation formula
b. Using the exact formula Each part asks two questions: what is the expected rate of change in the exchange rate AND what is the forecast for next year?
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