Consider a $180,000, 30-year-fixed-rate mortgage with a nominal interest rate of 6% compounded monthly. Suppose that after paying the first 12 monthly payments, the borrower decides that the borrower cannot pay the current monthly payments and compromises with the bank for a monthly payment of $900 with the same nominal interest rate of 6%. Determine the number of months necessary to pay off the mortgage.

Sixth-month Treasury rates are 4% in Japan and 2% in the United States. The current exchange rate is 120 yen per dollar and the current 6-month forward exchange rate is 115 yen per dollar:

• How can you arbitrage the situation?
• Provide detailed explanation and citations about the underlying theory you applied in responding to part (a)