You are an investment manager in Chile. You see different interest rates around the world and your exchange trading team has provided you with the current spot rate and an expected future spot rate between the Chilean and Hong Kong currencies.

*Current spot exchange rate is 86 Chilean Pesos per Hong Kong Dollar *The 1 year interest rate on the Hong Kong Dollar-denominated bank deposit is 2.5% *The 1 year interest rate on the Pesos-denominated bank deposit is 5.0% *Expected future spot rate in 90 days is 90 Chilean Pesos per Hong Kong Dollar

Roughly speaking (we allow for rounding errors): If you invested 4 billion pesos into a Hong Kong bank and then returned it using this expected future spot rate and assuming it turned out to be accurate, how much more money would our firm make or lose in Hong Kong than our home country of Chile (be sure to note if this was a gain or loss)?

(Answer is 0.162 Billion Gain (e.g. 162 Million). I need an explanation. We are given this equation:

Expected Uncovered Interest Differential (EUD) = ((future spot rate - current spot rate)/(current spot rate)) + (foreign interest - domestic interest)