QUESTION ONE (20 MARKS) a) If Asian countries experience a decline in economic growth and experience a decline in inflation and interest rates as a result), how will their currency values relative to US dollar be affected? (6 marks) b) Explain how the depreciation of Hong Kong dollar against the U.S. dollar would affect the return to a U.S. firm that invested in a Hong Kong money market security. (4 marks) c) When the market is not in equilibrium, the potential for riskless or arbitrage profit exists. Discuss the difference(s) between covered interest arbitrage and uncovered interest arbitrage. (Hint: You may use a hypothetical example to illustrate the difference(s)) (6 marks) d) Some forecasters believe that foreign exchange markets for the major floating currencies are efficient" and forward exchange rates are unbiased predictors of future spot exchange rates. What is meant by unbiased predictor in terms of how the forward rate performs in estimating future spot exchange rates? (4 marks)