1. (20 points) Hong Kong Dollar Funding. Cash markets vs. Synthetic. On December 31st, 2018, you are asked to borrow HK$1 billion for 1 year for your institution. You must decide whether to fund this in the cash Hong Kong interbank market or synthetically in the US dollar LIBOR market. Spot 12-month Foreign Rate Forward Points Exchange Market 7.8322 -565 Annualized Interest Rates % 3-month 12-month HIBOR Rates 2.32679 2.74714 USD LIBOR Rates 2.61375 3.00544 a. Use the above chart to calculate the forward rate 12 months in the future, Fil.b. Calculate US$X * the amount of US$ you would need to borrow to buy 1 billion HK$ 1n the spot market. Calculate US$Y: how much US$ you would need to repay in 12 months if you borrowed US$X. Calculate HK$Z= the amount of HK$ you would need to agree to pay in the forward market to receive US $Y in 12 months. 0. Calculate how much HK$ you would need to repay in 12 months if you borrowed HK$1 billion 1n the HIBOR market. Which 1s larger the amount of HKD you would need to repay if you borrow HKD directly or HK$Z calculated 111 part b., the amount of HKD you will need to deliver in the forward market to borrow synthetically by borrowing in US$ and swapping into HKD