The Turkish one-year interest rate is 27 per cent, while the UK one-year interest rate is 9 per cent. If a UK firm creates a one-year deposit in Turkey, the turkish lira would have to ____ against the pound by ____ in order to make that investment have an effective yield that is at least as great as in the UK.

Question

Quizplus · Accepted Answer

The Turkish interest rate is 18% higher than the UK rate (27% - 9%). For the UK firm to have an effective yield equal to the UK rate, the lira must depreciate by about 14% (1 - (1.09/1.27)).

The Turkish One-Year Interest Rate Is 27 Per Cent, While