Millon National Bank has 10 million British pounds (£) inone-year assets and £8 million in one-year liabilities. Inaddition, it has one-year liabilities of 4 million euros (€).Assets are earning 8 percent and both liabilities are being paid ata rate of 8 percent. All interest and principal will be paid at theend of the year.

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1. What is the net interest income in dollars if the spotprices at the end of the year are $1.50/£ and €1.65/$?

A.	$46,060.61.

B.

$320,000.

C.	$1,200,000.

D.	$266,666.67.

E.

$720,000.

2. What is the net interest income in dollars if the spot pricesat the end of the year are $1.35/£ and €1.35/$ and the liabilitiesinstead cost 7 percent instead of 8 percent?

A.	$1,080,000.

B.	$116,592.59.

C.	$100,567.45.

D.	$112,677.94.

E.	$120,009.76.

3. If the year-end spot exchange rate for the British pound is$1.50/£ and the liabilities pay 8 percent, what is the maximum thatthe € can appreciate and the bank still maintain a zeroprofit?

A.

€1.30/$.

B.

€1.33/$.

C.

€1.35/$.

D.

€1.50/$.

E.

€1.60/$.