A finance company owns $50 million of floating-rate bonds yielding LIBOR plus 1 percent. These loans are financed with $50 million of fixed-rate guaranteed investment contracts (GICs) costing 10 percent. An insurance company has $50 million of auto loans with a fixed rate of 14 percent. The loans are financed with $50 million in CDs at a variable rate of LIBOR plus 4 percent. Which of the following is correct?

I. The finance company (FC) is exposed to rising interest rates on the asset side of the balance sheet.

II. The FC wishes to convert the fixed rate liabilities into variable rate liabilities by swapping the fixed rate payments for variable rate payments

III. The FC will make fixed rate payments and therefore is the buyer in the swap.

Group of answer choices :

A. I and II only

B. II only

C. I only

D. I and III only

E. I, II, and III