Question 1. You live in a country where interest rates may be positive, zero or negative. A negative interest rate means a borrower is credited (rather than charged interest on a loan, while an investor is charged ( does not gain) interest on a deposit. As usual, denote the continuously compounded interest rate (whether positive, zero, or negative) by r. (a) In no more than a paragraph, explain in general terms the circum- stances that might give rise to a negative interest rate, and the intentions of the central bank in adopting it. (2 marks] (b) As you know, the holder of a forward contract agrees to deliver or take delivery at time 7 of an asset (S,) for a price Fo agreed on at time 0. Suppose r 0. Which of the following is correct? Give reasons. (i) Fo = Soe"T; or (ii) Fo = Sue IT: or (iii) Fo = Soe . [1 mark SEE OVER