Given the interest rate swap quotes below (all quotes are fixed against the floating LIBOR with principle of 1million):

Sterling

Years Bid Ask

1 0.63 0.66

2 0.91 0.95

3 1.11 1.15

4 1.28 1.33

5 1.42 1.47

a.If you speculate that the interest rate on the British pound is going to increase over the next 3 years, what would you do to profit from such a speculation? Please draw a graph and be specific in articulating buy or sell what and receive or pay what rate etc.

b. If a year later, LIBOR on GBP is 1.12%, then at that time, what is your profit(loss) per contract?