Question: In a fixed-for-fixed currency swap, 4% (annually compounded) on a U. S. dollar principal of $125 million is received and 5% (annually compounded) on a

In a fixed-for-fixed currency swap, 4% (annually compounded) on a U. S. dollar principal of $125 million is received and 5% (annually compounded) on a British pound principal of 100 million pounds is paid.

Payments are exchanged every year.

The swap has 2.25 years left in its life.

The current exchange rate is 1.15 U. S. dollars per British pound.

Interest rates in both countries for all maturities are currently 4.5% (continuously compounded).

The value of the swap is closest to which of the following?

$2.13 million

$6.91 million

$2.13 million

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