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A US financial institution entered into a 4-year currency swap contract with an industrial company located in France. Under the terms of the swap, the
A US financial institution entered into a 4-year currency swap contract with an industrial company located in France. Under the terms of the swap, the financial institution receives interest at 3% per year in EUR and pays interest at 2% per year in USD. The principal amounts are EUR 50 million and USD 60 million, and interest payments are exchanged once at the end of each year. Immediately before cash flow payments and receipts are exchanged at the end of year 3, the exchange rate is USD 1.044 per EUR 1, the 1 -year risk-free rate in France is 3.0%, and the 1 -year risk-free rate in the US is 2.0%. Assuming continuous compounding, what is the value of the swap to the financial institution at the end of year 3 ? A. USD -7.603 million B. USD -7.445 million C. USD -7.068 million D. USD -6.921 million
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