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A U.S. firm (U.S.) and a foreign firm (F) engage in a four year plain-vanilla annual pay currency swap. The U.S. firm pays fixed in the FC and receives floating in dollars. The fixed rate at initiation and at the end of the swap was 5%. The variable rate at the end of year 1 was 4%, at the end of year 2 was 6%, and at the end of year 3 was 7%. At the beginning of the swap, $2 million was exchanged at an exchange rate of 2 foreign units per $1. At the end of the swap period the exchange rate was 1.75 foreign units per $1.
At the end of year 3, firm F will pay firm U.S.: A. 280,000 foreign units. B. $140,000. C. $120,000. |