If the dollar interest rate is 5% (for one year investment), the equivalent SF interest rate is

8%, and spot exchange rate is $1.10/SF, what is the one-year forward exchange rate under

interest rate parity?

Your answer: $__________/SF

(Keep four decimals;

Under a currency board arrangement, the Hong Kong dollar has been pegged to the U.S.

dollar since October 17, 1983. When the U.S. interest rate rises, what should the Hong Kong

monetary authority do to maintain the currency peg, as required by the interest rate parity?

a. The Hong Kong monetary authority should keep its interest rate unchanged.

b. The Hong Kong monetary authority should lower its interest rate.

c. The Hong Kong monetary authority should raise interest rate as well.