Refer to the following table. Xanadu Oil Corporation just secured a fixed interest rate loan at 7% and Rex Technologies just secured a loan at LIBOR+1%.

Now the two companies want to enter into an interest rate swap agreement where Xanadu wants to make payments at a floating rate and receive payments at a fixed rate.Rex wants to do the opposite.What are their expectations of interest rates in the future?

Interest Rate SwapsXanadu Oil CorporationRex TechnologiesCredit RatingAAABBBFixed rate cost of borrowing7%9%Floating rate cost of borrowingLIBOR +0.5%LIBOR +1.0%

Xanadu is expecting interest rates to fall so it wants the flexibility of floating interest rates

Both companies are expecting interest rates to fall

Rex is expecting interest rates to fall so it wants the flexibility of floating interest rates

Xanadu is expecting interest rates to rise so it wants the security of fixed interest rate

Xanadu is expecting interest rates to fall so it wants the security of fixed interest rate