Question: Hong Kong fixes its exchange rate with the US$ at HK$7.8/US$, but the financial market expects a 40% chance of a 20% devaluation of the

Hong Kong fixes its exchange rate with the US$ at HK$7.8/US$, but the financial market expects a 40% chance of a 20% devaluation of the HK$ in the coming month, and a 60% chance of no devaluation. To maintain the fixed exchange rate at HK$7.8/US$, what is the required interest rate differential between the HK$ and US$ (measured in annual %)?

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