Consider a Canadian who has C$1 million and is deciding to place her entire funds in either the Canadian 6-month Treasury Bills (TBs) or in the Japanese 6-month TBs. The yield on the Canadian TBs is 0.7% and the yield on the Japanese TBs is 0.2%. The (six-month) forward C$-Yen exchange rate is 0.015 (C$ per Yen) and todays spot rate between the two currencies is 0.012 (C$ per Yen). Using this information answer the following questions.

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

(b) What is the (hedged = risk-free) rate of return on the Japanese bonds?

(c) Based on your answer above, is there an arbitrage opportunity between the two deposits? Explain why or why not.