In a fixed-for-fixed currency swap, 4.5% on a US dollar principal of $160 million is received and

5.5% on a British pound principal of 110 million pounds is paid. The current exchange rate is 1.11

dollar per pound. Interest rates in both countries for all maturities are currently 6% (continuously

compounded). Payments are exchanged every year. The swap has 2.5 years left in its life.

(a) Find the value of the swap in terms of bond prices.

(b) Find the value of the swap in terms of a portfolio of forward contracts.