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What probability are the markets assigning

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Imagine Hong Kong 1-year outright forward rates are at 7.75 despite the fact the Hong Kong dollar is pegged at 7.80 to the US dollar (7.8 HK dollars per US dollar). If this difference is pricing in the possibility that the Hong Kong dollar will soon move to a 1 to 1 peg with the Chinese Yuan - equivalent to 7.60 to the dollar, what probability are the markets assigning to such an event?

The answer is 25%, but I need a solution to this answer.

Please provide me proper answer and complete solution with proper explanation otherwise i will dislike you immediately.

Reference no: EM132908369

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