Americana Bank Has $200 Million of Excess Funds and Britannia

question 1

Multiple Choice

Americana Bank has $200 million of excess funds and Britannia Bank has £100 million of excess funds in pound sterling.The spot exchange rate S_A is $2 per pound sterling.They enter into a currency swap today that has a tenor of two months.The annual risk-free simple interest rates are i = 4 percent in the United States and i_E = 5 percent in the United Kingdom.Cash flows are exchanged at the end of each month.
-After two months,the swap ends with the following transaction:

• A) Americana pays £100 million to Britannia and receives $200 million in return
• B) Americana pays £100.8333 million to Britannia and receives $201.3333 million in return
• C) Americana pays £100.4167 million to Britannia and receives $200.6667 million in return
• D) Americana pays £100.4167 million to Britannia and receives $201.3333 million in return
• E) None of these answers are correct.

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