A U.S. firm (U.S.) and a foreign firm (F) engage in a 3year, annual pay plainvanilla currency swap; U.S. is the fixed rate payer in FC. The fixed rate at initiation was 5%. The variable rate at the end of year 1 was 4%, at the end of year 2 was 6%, and at the end of year 3 was 7%. At the beginning of the swap, $2 million was exchanged at an exchange rate of 2 foreign units per $1. At the end of the swap period the exchange rate was 1.75 foreign units per $1. At the end of year 1, firm: A)F pays firm U.S. $200,000. B)U.S. pays firm F $200,000. C)U.S. pays firm F 200,000 foreign units.
