Two years ago, you took a EUR 100,000 loan from a bank, for a period of 5 years. Under the terms of the loan, you must pay an annual interest rate in arrears, equal to the 12-month EURIBOR, set once a year in advance. The interest rate for the payment due next year has just been fixed today, but the two remaining payments for year 4 and 5 will be determined in the future (in one year-time and two years-time respectively). You are concerned about the possibility that interest rates may rise, which would make your debt service more difficult. Which of the following tools could help you to hedge the interest rate risk?

Select one:

a. A 3-year interest rate Swap, by which you receive Fix and pay EURIBOR.

b. A 3-year interest rate Swap, by which you pay Fix and receive EURIBOR.

c. A 3-year cross currency swap, where you receive Euros and pay Dollars.