DIŞ TİCARET

Foreign exchange rate: In order to buy a unit of currency, the amount that must be foregone in the other currency is the foreign exchange rate. In other words, the foreign exchange rate is the price of one unit of currency in terms of the other. The correct answer is " A ".

The rate of change in the nominal exchange rate is explained by two factors: the rate of change in the real exchange rate and the inflation differential between two countries. If we accept that the real exchange rate is constant, the difference between inflation rates of domestic and foreign countries is the basic factor that determines the rate of change in the nominal foreign exchange rate. Provided that the domestic inflation is higher than the foreign inflation, the change in the nominal exchange rate will be positive indicating an increase. The correct answer is " A ".

After shortly reviewing the conceptual issues about the foreign exchange rates, we want to express two important activities taking place in these markets: Speculation and arbitrage. Both of these activities are related to gain extra return benefiting from price differences. A speculation activity does this on the time dimension while an arbitrage activity does it on the place dimension. The correct answer is " C ".

In the foreign exchange market, there is another differentiation on the exchange rates: Spot and forward exchange rates. Spot exchange rate, a.k.a benchmark rate or outright rate, is the current exchange rate today for immediate delivery. The corect answer is " E ".

Determination of the equilibrium level of $/T exchange rate in the long run is not different from the price determination process. The correct answer is " B ".

Factors that cause a change in the equilibrium exchange rate are the factors which are accepted as constant other than the current exchange rate (the variable on the vertical axis of the figure). The correct answer is " A ".

In macroeconomics, these factors include the real GDP, relative productivity, relative price level, barriers for international trade (like tariffs and quotas) and preferences between imported and domestically produced goods. The correct answer is " C ".

Purchasing Power Parity (PPP) Theory is based on a principle known as “law of one price”. This law claims that the entirely homogeneous (identical) goods should be sold with the same price even in different markets. The correct answer is " B ".

If we assume that there is a perfect substitution between two assets with different currencies, the relationship between expected returns produces some important conclusions about the determination of foreign exchange rate between the two currencies. First, we should question the meaning and validity of this assumption. Today, depending upon the globalization process in the world economy, capital is a production factor with a very high mobility. The correct answer is " E ".

The last factor changing the equilibrium exchange rate in the interest rate parity approach is the changes in domestic interest rate (iT) paid for Turkish lira assets. The correct answer is " A ".

Real foreign exchange rate: The value of a domestic currency against foreign currencies corrected for the purchasing power is called the real foreign exchange rate

Real Fx Rate = Nominal FX Rate x ForeignPrice
                                    DomesticPrice

forward exchange rate is the exchange rate settled today for a payment or delivery that will be consummated in a future date.

price increases in two countries, barriers to free trade, preferences between imported and domestically produced goods and relative productivity affect the demand and supply of foreign exchange and cause a change in the equilibrium level of foreign exchange rate

The PPP Theory points out an important fact: If the prices in the home country increase more than the prices in the foreign country, domestic currency must depreciate. On the contrary, if the prices in the foreign country increase more than the prices in the home country, domestic currency must appreciate.

The law of one price: It states that entirely homogeneous (identical) goods should be sold with the same price even in different markets.

The interest parity condition states that the domestic interest rate is equal to the
total of foreign interest rate and to the expected rate of change in the foreign exchange rate

The Big Mac index was invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their “correct” level.

The Central Bank of the Republic of Turkey (CBRT) monthly publishes the real effective exchange rate on its internet site via Electronic Data Delivery System

Spot exchange rate: It is the current exchange rate today for immediate delivery.