1.Consider a Canadian who has C$1 million in her passion decides to place her entire funds in either the 6-month Canadian Treasury Bills (TBs) or in the 6-month Swiss TBs.The yield on Canadian TBsis 1.2% (0.012) and the yield on Swiss TBs is 0.5% (0.005).The (six-month) forward C$-Swiss Franc exchange rate (C$ -CHF) is 1.30 and today's spot rate between the two currencies is 1.25.Using this information answer the following questions:

(a)Defining the forward spread (discount or premium) is the Canadian dollar at a discount or premium? And by how much?

(b)Calculate the riskless (covered) rate of return on Swiss TBs. (YOU DO NOT NEED TO ANNUALIZE the rate.)

(c)Can you identify an arbitrage opportunity here to be exploited? Explain why or why not.