1. Peter is a foreign exchange trader with Citibank. He notices the following quotes. a. Ignoring transaction costs, is interest rate parity holding? (3 marks) b. Is there an arbitrage possibility? If yes, what steps would be needed to make an arbitrage profit? Assuming that Peter is authorized to work with $1,000,000 for this purpose, how much would the arbitrage profit be in dollars? (5 marks) 2. Assume that the yield-to maturity on a straight fixed-rate bond is 4%. A comparable risk five-year, 5.5 percent euro/dollar dual-currency bond pays $1,500 at maturity per C1,000 of face value. It sells for 61,250 . What is the implied $/C exchange rate at maturity? (5 marks) 3. Security returns are found to be less correlated across countries than within a country. Why can this be