= Sun Bank USA has purchased a 16 million one-year Swiss franc loan that pays 12 percent interest annually. The spot rate for Swiss franc’s is SF1.60/$. Sun Bank has funded this loan by accepting a British pound–denominated deposit for the equivalent amount and maturity at an annual rate of 10 percent. The current spot rate of the British pound is $1.60/£. What is the net interest income earned in dollars on this one-year transaction if the spot rates at the end of the year are SF1.70/$ and $1.85/£? What should be the £ to US$ spot rate in order for the bank to earn a net interest margin of 4 percent? Does your answer to part

(b) imply that the dollar should appreciate or depreciate against the pound? What is the total effect on net interest income and principal of this transaction given the end-of-year spot rates in part (a)?