Hello I need assistance answering these multiple choice ques

Hello,

I need assistance answering these multiple choice questions.

Solution

comSolution (11): Covered interest arbitrage is an arbitrage trading strategy whereby an investor capitalizes on the interest rate differential between two countries by using a forward contract to hedge.

(800,000 Pounds*1.80$)*(1.12)/(1.50$)=1,075,200 Pounds

Solution(12): Commercial bank exchange rates: $1.15-$1.558
PC National Bank exchange rates: $1.12-$1.135
If there are exchange rate differentails, then buy in a low ask rate market and sell in a high bid rate market for arbitrage.
$900,000/1.135*1.15=$911,894. Hence gain=$911,894-$900,000=$11,894

Solution(13): Premium, decrease
As Japan interest rate is higher by 1% than US interest rate, the forward must quote at premium but since the interest rate has decreased by 3% the forward premium must be decreased.