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 here: $ Borrowing E Borrowing Cost Company X 10.58 Company E 131 Cost $100 $12 A swap bank proposes the following interest only swap: X will pay the swap bank annual payments on $10,000,000 with the coupon rate of 9.80 percent; in exchange the swap bank will pay to company X Interest payments on 5,000,000 at a fixed rate of 10.5 percent. Y will pay the swap bank interest payments on 5,000,000 at a fixed rate of 12.80 percent and the swap bank will pay Y annual payments on $10,000,000 with the coupon rate of 12 percent What is the value of this swap to the swop bank? What is the value of this swap to the swap bank? Multiple Choice 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 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 The swap bank will earn 10 basis points per year, the only risk is default risk. The 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