By examining financial sources, you find the following information :(15)

Spot rate = 4.57 HK/AU, Tax rates in the Hong Kong and Australia are 15% and 25% respectively.

Australia annual statistics Hong Kong annual statistics

Interest rates 10% Interest rates 8%

Inflation 4% Inflation 7%

a. What is the best estimate of the future H/A spot rate in 6 months using Purchasing Power Parity?

b. What is the 6 month forward A/H rate using Interest Rate Parity?

c. If in 6 months, the actual exchange rate turns out to be 4.6 H/A, which currency has appreciated in real terms

d. If in 6 months, the actual exchange rate turns out to be 4.55 H/A, which currency has appreciated in Nominal terms.

e. If you are a Australian exporter, are you better off, or worse off if the exchange rate stayed at 4.57 H/A, and why?