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What is the value of the swap to the financial institution

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Suppose the term structure of interest rates is flat in the United States and Canada. The USD interest rate is 3% per annum and the CAD interest rate is 3.5% per annum. The current value of one CAD is 0.73 USD. In a swap agreement, a financial institution pays 6% per annum in CAD and receives 5.5% per annum in USD. The principals in the two currencies are 10 million USD and 14 million CAD. Payments are exchanged every 6 months, with one exchange having just taken place. The swap will last two more years. What is the value of the swap to the financial institution? Assume all interest rates are continuously compounded.

Reference no: EM132499214

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