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6. Suppose the 6-month risk free spot rate in HKD is 1% continuously compounded, and the 6-month risk free rate in NZD is 3% continuously

6. Suppose the 6-month risk free spot rate in HKD is 1% continuously compounded, and the 6-month risk free rate in NZD is 3% continuously compounded. The current exchange rate is 5 HKD/NZD. (a) Suppose our usual assumptions hold, i.e., no constraints or other frictions. What is the forward exchange rate with 6 months to maturity such that there is no arbitrage? (b) Suppose again that our usual assumptions hold, i.e., no constraints or other frictions. Suppose you can enter a forward contract to buy or sell NZD 1 for HKD 5. Is there an arbitrage? If yes, describe an arbitrage strategy. If no, briefly explain why not

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