The spot rate term structure is flat at $5\mathrm{.}5\%$ per annum with continuous compounding.

Some time ago a financial institution entered into a $5-$year swap with a principal of $$100$ million in which every year it pays $12-$ month LIBOR and receives $3\mathrm{.}2\%($both annual compounding$).$ The swap now has two and a half years to run. $6$ months ago $12-$month LIBOR was $5\mathrm{.}1\%($with annual compounding$).$

b$)$ What is the financial institution's credit exposure on the swap? That is$,$ what if the counterparty of the financial institution defaults? $(2$ marks$)$

Select one:

a$.$ $$2,000,000$

b$.$ $$494,175$

c$.$ $$0$

d$.$ $$100,000,000$