The spot rate term structure is flat at 5.5% per annum with continuous compounding. Some time ago a financial institution entered into a 5 -year swap with a principal of $100 million in which every year it pays 12- month LIBOR and receives 3.2% (both annual compounding). The swap now has two and a half years to run. 6 months ago 12-month LIBOR was 5.1% (with annual compounding).
What is the financial institution's credit exposure on the swap? a. $2,000,000 b. $494,175 c. $0 d. $100,000,000
