Step 1: Compute the ending value of the U.S. loan portfolio

• U.S. loans: `$400.0` million at 5.0%
• End-of-year value: `400.0` \times 1.05 = \`420.0` million

Step 2: Compute the ending value of the euro loan portfolio using the forward hedge

• Initial euro amount purchased with `200.0` million at spot \`1.15`/€1: $$\frac{200.0}{1.15} = 173.9130 \text{ million euros}$$
• End-of-year euro value at 8.0%: $$173.9130 \times 1.08 = 187.8261 \text{ million euros}$$
• Convert euros back to dollars using the one-year forward rate of `$1.12`/€1: $$187.8261 \times 1.12 = 210.3652 \text{ million dollars}$$

Step 3: Compute total end-of-year asset value

$$420.0 + 210.3652 = 630.3652 \text{ million}$$

Step 4: Compute liability repayment

• CDs of `$600.0` million at 3.0%
• End-of-year liability value: $$600.0 \times 1.03 = 618.0 \text{ million}$$

Step 5: Compute net return (ROI)

Net profit:

$$630.3652 - 618.0 = 12.3652 \text{ million}$$

ROI over the year, based on beginning assets of `$600.0` million:

$$\frac{12.3652}{600.0} = 0.0206 = 2.06\%$$

Why not net interest margin?

Net interest margin is typically based on interest income minus interest expense relative to earning assets, while ROI here reflects the overall net return after the FX hedge and liability funding cost. The nearest answer is 2.06%.