Suppose that at the end of September 2008, the exchange rate between HKD and USD was 8 HKD per USD. The Hong Kong government promised that the exchange rate would remain 8 HKD per USD for at least one year. The semi-annually coumpounded risk-free interest rate in the US was 1% per annum.

Suppose that at the end of September 2008, the risk-free rate in Euro Zone was 1% per annum, semi-annually compounded. The spot exchange rate between Euro and USD was 1 USD per Euro. The forward rate for end-of-March 2009 delivery was 1.02 USD per Euro.

What was the semi-annually compounded shadow interest rate of borrowing USD as implied by CIP? Define the difference between the shadow interest rate and the market interest rate in US as the convenience yield, what was the convenience yield for holding US Treasury at the end of September 2008? The difference between the semi-annually compounded rates should suffice.