Question 1.1. A US bank raises USD $10 million (liabilities) and invests this amount into a Russian project denominated in Russian rubles (asset) with an expected foreign rate of return of 12%. The bank remains unhedged with respect to this currency risk. If there is a sudden increase in the Russian inflation rate, without any corresponding impact on the project’s nominal, foreign 12% return on the project, according to purchasing power parity (PPP), what is the impact on the bank?