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Bank USA recently made a one-year $10 million loan that pays 10 percent interest annually. The loan was funded with a euro-denominated one-year deposit at
Bank USA recently made a one-year $10 million loan that pays 10 percent interest annually. The loan was funded with a euro-denominated one-year deposit at an annual rate of 8 percent. The current spot rate is EUR1.60/$.
a. What will be the total income in dollars on the one-year loan if the spot rate at the end of the year is EUR1.58/$?
b. What will be the total return on assets?
c. How far can the EUR can appreciate before the transaction will result in a loss for Bank USA?
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