25. Company X wants to borrow $10,000,000 for 5 years; company Y wants to borrow 5,000,000 for 5 years. The exchange rate is $2 = 1 and is not expected to change over the next 5 years. Their external borrowing opportunities are shown below: Company X Company Y $ Borrowing Cost Borrowing Cost $10% $12% A swap bank proposes the following interest only swap: 10.5% 13% X will pay the swap bank annual payments on $10,000,000 with the coupon rate of 9.80%; in exchange the swap bank will pay to company X interest payments on 5,000,000 at a fixed rate of 10.5%. Y will pay the swap bank interest payments on 5,000,000 at a fixed rate of 12.80% and the swap bank will pay Y annual payments on $10,000,000 with the coupon rate of 12%. 10.50 $9.8% 10.50% SWAP BANK $12% Y 12.80% $12% What is the value of this swap to the swap bank? A. The swap bank will earn 10 basis points per year; the only risk is default risk. B The swap bank will earn 10 basis points per year but has exchange rate risk: dollar-denominated . income and pound-denominated costs and default risk. C The swap bank will earn 10 basis points per year but has exchange rate risk: pound-denominated income and dollar-denominated costs and default risk. DThe swap bank will earn 20 basis points per year in dollars but has exchange rate risk: pound- denominated income and dollar-denominated costs and default risk.