Bank USA recently purchase $10million worth of euro denominated one-year CDs that pay 10% interest annually. The current spot rate of U.S. dollars for euros is $1.30/1.

1. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro?

2. What will be the return on the one-year CD if the dollars appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.2/1?

3. What will be the return on the one-year CD if the dollars depreciates relative to the euro such that the spot rate of U.S. dollars for euro at the end of the year is $1.4/1?