The Turkish Lira (TL) was officially devalued by the Turkish government in February 2001 during a severe political and economic crisis. The Turkish government announced on February 21 that the lira would be devalued by 20%. The spot exchange rate on February 2001 was TL 68,000/$.

(a) What was the exchange rate after a 20% devaluation?

(b) Within three days the lira had plummeted to TL100,000/$. What percent change was this from the predevaluation rate?

a) The exchange rate after a 20% devaluation is TL85,000/$

b) The percent change was this from the predevaluation rate is - 32%

Explanation:

a) exchange rate after devaluation = (exchange rate before devaluation) / (1 - Devaluation)

= TL68,000 / (1-20%)

= TL68,000 / (0.80)

= TL85,000

Therefore, The exchange rate after a 20% devaluation is TL85,000/$

b) percentage change = (starting exchange rate - ending exchange rate) / ending exchange rate

= (TL68,000 - TL100,000) / TL100,000

= - TL32,000/TL100,000

= - 0.32

Therefore, The percent change was this from the predevaluation rate is - 32%