East Bank USA has purchased a 5 million one-year Swiss franc (Sf) loan that pays 6 percent interest annually. The spot rate of U.S. dollars for Swiss francs is $0.9691/Sf. It has funded this loan by accepting a Canadian dollar (C$)denominated deposit for the equivalent amount and maturity at an annual rate of 4 percent. The current spot rate of U.S. dollars for Canadian dollars is $0.9622/C$.

A. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Sfs and U.S. dollars for C$s at the end of the year are $0.9825/Sf and $0.9588/C$, respectively?

B. What should the spot rate of U.S. dollars for C$s be at the end of the year in order for the bank to earn a net interest income of $125,000 (disregarding any change in principal values)?