A German bank issues a one-year 2,000,000 CD at 2%. It uses these funds to make a one-year US $- denominated loan to ABC Corporation at 4%. Current exchange rate is $1.15/. The one-year forward rate (F$/) = $1.17/. What is bank's exchange rate risk exposure?

Multiple Choice

• Bank is exposed to an appreciation of the US $ relative to the Euro.

• Bank is exposed to a deprecitaion of the Euro relative to the US$.

• Bank is exposed to a depreciation of the US $ relative to the Euro.

• None of the above.