Suppose an Italian bank has short-term borrowings of 400 million euros and 100 million U.S. dollars and made long-term loans of 300 million euros and 250 million U.S. dollars. The euro–dollar exchange rate is initially $1.50 per euro.

a. Draw up a simple balance sheet for this bank.

b. List the risks that this bank faces.

c. If the euro–dollar exchange rate moved to $1.60 per euro, would the bank gain or lose? Provide calculations to support your answer.