Bank USA Has Fixed-Rate Assets of $50 Million Funded by Fixed-Rate

Multiple Choice

Bank USA has fixed-rate assets of $50 million funded by fixed-rate liabilities of 75 million Euros paying an interest rate of 10 percent annually.Bank Dresdner has fixed-rate assets of €75 million funded by fixed-rate liabilities of $50 million paying an interest rate of 10 percent annually.The current exchange rate is €1.50/$.They agree to swap interest payments on their liabilities to hedge against currency risk exposure for two years. The transaction each year consists of

A) Bank USA swaps a payment of $5 million per year for Bank Dresdner's payment of €7.5 million to make interest payments on each other's debt.
B) Bank USA swaps a payment of €6 million per year for Bank Dresdner's payment of $4 million to make interest payments on each other's debt.
C) Bank USA swaps a payment of $6 million per year for Bank Dresdner's payment of €6 million to make interest payments on each other's debt.
D) Bank USA swaps a payment of €6 million per year for Bank Dresdner's payment of $6 million to make interest payments on each other's debt.
E) Bank USA swaps a payment of $4 million per year for Bank Dresdner's payment of €4 million to make interest payments on each other's debt.