A currency swap has a remaining life of 2 years. It involves exchanging interest at 9% on GBP20 million for interest at 5% on USD30 million twice a year. The term structure of riskfree interest rates in the United Kingdom is flat at 7% and the term structure of riskfree rates in the United States is flat at 4% (both with annual compounding). The current exchange rate (dollars per pound sterling) is 1.6500USD/GBP. (i) What is the value of the swap to the party paying sterling (GBP) in USD? (ii) What is the value of the swap to the party paying dollars (USD) in GBP? Notes: The value of a swap is the difference between the values of two bonds To price the bonds you can use the PV function in Excel. These swaps are semiannual. Also, negative numbers indicate a loss in the swap.

A. a. (i) 3.6410 USD; (ii) +2.2066 GBP

B. c. (i) 4.0051 USD; (ii) +2.4273 GBP

C. b. (i) +3.6410 USD; (ii) 2.2066 GBP

D. e. None of the others

E. d. (i) +4.0051 USD; (ii) 2.4273 GBP