Bank A has purchased a 2.5 million one-year Euro loan that pays 10% interest annually. The spot rate of U.S. dollars for Euros is 1.20. It has funded this loan by accepting a yen-denominated deposit for the equivalent amount and maturity at an annual rate of 4%. The current spot rate of U.S. dollars for Japanese yen is .0085.
a. What is the loan amount in dollars?
b. What is the deposit amount in yen?
c. What is the interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Euro and U.S. dollars for yen at the end of the year are 1.25 and .0080, respectively?
d. What is the interest expense in dollars?