Suppose that the term structure of LIBOR/swap interest rates is flat in both UK and US. The Sterling rate is 7% per annum and the US rate is 9% per annum (both with continuous compounding). Sometimes ago a financial institution has entered into a currency swap (with a bank) in which it pays 6% per annum in sterling and receives 8% per annum in dollars once a year. The principals in the two currencies are $10 million and 6.0 million sterling. The swap will last for another 2 years, and the current exchange rate is $1.6 = 1.0Sterling.

a) What is the present value of the net $ payment that will be exchanged in 1 year?

b) What is the value ($) of the swap to the financial institution?