Consider a 3-year annual currency swap that takes place between a foreign firm (FF) with FC currency units and a U.S. rm (USF) with $ currency units. USF is the xed-rate payer and FF is the oating-rate payer. The xed interest rate at the initiation of the swap is 7%, and 9% at the end of the swap. The variable rate is 5% currently; 6% at the end of year 1; 8% at the end of year 2; and 7% at the end of year 3. At the beginning of the swap, $1.0 million is exchanged at an exchange rate of FC2.0 = $1.0. At the end of the swap period, the exchange rate is FC1.5 = $1.0.

Note: With this currency swap, end-of-period payments are based on beginning-of-period interest rates.

a) At the initiation of the swap, which of the following statements is most likely correct?

FF gives USF $2.0 million

USF gives FF $1.0 million

FF gives USF $1.0 million

USF gives FF FC2.0 million

b) At the end of year 2: USF pays FC140,000; FF pays $60,000

USF pays FC60,000; FF pays $70,000

USF pays USD70,000; FF pays FC60,000

USF pays USD60,000; FF pays FC140,000

c) At the end of year 3, FF will pay which of the following total amounts? $1,080,000

FC2,160,000

FC2,060,000

$1,000,000

d) At the termination of the swap, FF gives USF which of the following notional amounts?

$1.5m

$1.0m

FC1.5m

FC2.0m