Imagine Hong Kong 1-year outright forward rates are at 7.75
despite the fact the Hong Kong...
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Economics
Imagine Hong Kong 1-year outright forward rates are at 7.75
despite the fact the Hong Kong Dollar is pegged at 7.80 to the US
dollar (7.8 HK dollars per US dollar). If this difference is
pricing in the possibility that the Hong Kong Dollar will soon move
to a 1 to 1 peg with the Chinese Yuan - equivalent to 7.60 to the
dollar, what probability are the markets assigning to such an
event? Explain your answer.
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