Lachlin Bank has a liability where the annual nominal interest rate is 8% convertible semiannually, and DCB Bank has a liability where the annual nominal interest rate is at prime +12% convertible semiannually.

These two banks enter a swap whereby Lachlin Bank pays DCB Bank at a rate of prime in return for a rate of 7.5% per year. The situation regarding the risk exposure of the parties if there is an increase in the prime is that:

Possible Answers A-Lachlin Bank would be exposed

B-Both parties would be exposed

C-Neither party would be exposed because the risk is hedged

D-DCB Bank would be exposed

E-Not enough information is provided to determine risk exposure