00:01
In august of 2018, the turkey lira depreciated sharply against the u .s.
00:05
Dollar.
00:06
The underlying causes behind the depreciation of the lira are the exceptionally large external financing need to buy goods from abroad and to pay foreign denominated debt, a slowing global economy, rising u .s.
00:19
Interest rates, high inflation.
00:21
Part a.
00:24
Explain how each of these four factors caused the lira to depreciate against the u .s.
00:29
Dollar.
00:29
And part b, how would the depreciation of the lira affect the following? international trade, inflation in turkey, foreign investments into turkey, and multinational profits in turkey.
00:41
So let's start with part a.
00:46
As the global markets expanded, the currencies have been exchanged more freely and have adopted policies to implement dollars as an exchange medium.
00:56
In the year 2018, the turkish dollar fell by as much as 80 % as compared to the american dollar.
01:02
The reason stated above, one was exceptionally large external financial financial.
01:08
Financing.
01:25
To procure goods and services from abroad, turkey has taken large amounts of debt, which is predominated by the dollar.
02:25
Experts believe that over 70 % of turkey's economy is being run by debt money, which is financed from various countries, but all of them have value in dollars.
03:03
So if we think about this, 70 % of their economy being run by debt money is a huge portion of their economy.
03:12
If we think about this in terms of personal budgets, if i say 70 % of my personal income is going towards my debt, that leaves very little for me to live on, to grow, to thrive.
03:24
And the same is true of this economy.
03:27
If 70 % of their economy is being run by debt money, that leaves only 30 % that isn't.
03:32
And that's small in comparison to be able to help them grow and thrive and be competitive on the world stage.
03:38
So with the country not being able to get sufficient payments for the goods exported, the increasing debts and interest payments would mean that the currency would get devalued because now they're relying on 30 % of their economy to pay for 70 % of it.
03:52
That just doesn't work.
03:54
They're going to continue going more and more in debt because they're not earning enough to pay off their debt.
05:08
Another cause was a slow global economy.
05:21
A slowing global economy would mean that the country is unable to generate sufficient revenue for itself through exports as the demand for goods and services is decreasing...