1 Suppose that the market condition is summarized as follows; Annual interest rate Japan: 1% p.a. Annual interest rate in France: 6% p.a. 1-year forward exchange rate F(JPY/EUR): 110.2423 Spot rate S(HKD/AUD):4.1548 Spot rate S(NZD/AD):1.2052 Spot rate S(JPY/EUR): 114.4733 Spot rate S(HKD/NZD): 3.5825 a. Based on cross exchange rate S(HKD/NZD), is there any arbitrage opportunity? If yes, please show profitable sequence and calculate profit for HKD 1 million (10 marks) b. If actual S(HKD/NZD) is 3.4474, is there any arbitrage opportunity? (3 marks) c. Based on information above, does interest rate parity hold? (2 marks)