The Hong Kong dollar is currently pegged to the US dollar at a rate of 7.80 HKD/USD. Suppose that the peg will either hold over the next year, or the HKD will appreciate such that the exchange rate will be 6.25 HKD/USD in one year. The current 1-year USD interest rate is 1.475% per annum and the 1-year HKD interest rate is 1.0725% per annum. 

If UIRP holds, what percentage probability does the market attach to the revaluation of the HKD?

Answer rating: 100% (QA)

The Uncovered Interest Rate Parity UIRP formula is used in this case The formula is as follows F S 1 ... View the full answer