Bank USA just made a one-year $10 million loan that pays 10 percent inter- est annually. The loan was funded with a Swiss franc-denominated one-year deposit at an annual rate of 8 percent. The current spot rate is SF 1.60/$1.

a. What will be the net interest income in dollars on the one-year loan if the spot rate at the end of the year is SF 1.58/$1?

b. What will be the net interest return on assets?

c. How far can the SF/$ appreciate before the transaction will result in a loss for Bank USA?

d. What is the total effect on net interest income and principal of this transac- tion given the end-of-year spot rates in part (a)? LO.1