PLEASE ITS URGENT, PLEASE ITS URGENT

Bank USA has fixed-rate assets of $50 million funded by fixed-rate liabilities of 75 million Euros paying an interest rate of 10 percent annually. Bank Dresdner has fixed-rate assets of 75 million funded by fixed-rate liabilities of $50 million paying an interest rate of 10 percent annually. The current exchange rate is 1.50/$. They agree to swap interest payments on their liabilities to hedge against currency risk exposure for two years.

At the end of the year 2, the exchange rate is 1/$. What are the losses and gains to each bank as a result of this swap. Ignore principal payments and compare it to the scenario where it did not engage in the swap?

a. With the agreement, Bank USA pays $3.75 million less while Bank Dresdner pays 7.5 million more.

b. With the agreement, Bank Dresdner pays 2.5 million more while Bank USA pays $2.5 million less.

c. With the agreement, Bank USA pays $3.75 million more while Bank Dresdner pays 7.5 million less.

d. With the agreement, Bank Dresdner pays 2.5 million less while Bank USA pays $1.25 more.

e. Each bank pays the same because the exchange rate affects both parties equally.