Star Bank is based in U.S.A. Star Bank recently purchased $10 million worth of euro-denominated one-year CDs that pay 10 percent interest annually. The current spot rate of U.S. dollars for euros is $1.104/1.

a) Is Star Bank exposed to foreign exchange risk?

b) What will be the return on the one-year CD, if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.004/1? (Show your calculations)

c) What will be the return on the one-year CD, if the dollar depreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.204/1?