Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow 5,000,000 fixed 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

	$ Borrowing					Borrowing
	Cost					Cost
Company X	$	10	%					10.5	%
Company Y	$	12	%					13	%

A swap bank wants to design a profitable interest-only fixed-for-fixed currency swap. In order for X and Y to be interested, they can face no exchange rate risk.

What must the values of A and B in the graph shown above be in order for the swap to be of interest to firms X and Y?

A) A = $10.50%; B = 12%.

B) A = $10%; B = 13%.

C) A = $12%; B = 13%.

D) A = 10.50%; B = $12%.

Can someone explain to me why the answer is D?