A USBank Agrees to a Swap of Making Fixed-Rate Interest Payments

question 99

Multiple Choice

A U.S.bank agrees to a swap of making fixed-rate interest payments of $12 million to a UK bank in exchange for floating-rate payments of LIBOR + 4 percent in British pounds for a notional amount of £100 million.The current exchange rate is $1.50/£.The interest payments will be exchanged at the end of the year at the prevailing rates.

What is the nominal payment paid or received by the U.S.bank over the three year period?

• A)The U.S.bank received $2 million over the three year period.
• B)The U.S.bank received $1 million over the three year period.
• C)The U.S.bank paid $0 over the 3 year period.
• D)The U.S.bank paid $1 million over the three period.

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