A US Bank Agrees to a Swap of Making Fixed-Rate Interest

A U.S. bank agrees to a swap of making fixed-rate interest payments of $12 million to a UK bank in exchange for floating-rate payments of LIBOR + 4 percent in British pounds for a notional amount of £100 million. The current exchange rate is $1.50/£. The interest payments will be exchanged at the end of the year at the prevailing rates.
-What is the nominal payment paid or received by the U.S. bank over the three year period?

A) The U.S.bank received $2 million over the three year period.
B) The U.S.bank received $1 million over the three year period.
C) The U.S.bank paid $0 over the 3 year period.
D) The U.S.bank paid $1 million over the three period.
E) The U.S.bank paid $2 million over the three period.

Correct Answer:

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