You are given the balance sheets of Blue Bank and Red Bank now. Both banks are based in U.S.A. Suppose the LIBOR rate is 4% now. All the deposits and loans of these banks are in U.S. dollars. a) Suppose the LIBOR rate goes up to 6% year from now. (i) Will Blue Bank gain or lose money? Why? (ii) Will Red Bank gain or lose money? Why? (iii) What do we call the risk that both banks are exposed to? b) If both banks want to hedge their risks, what kind of arrangement will they make? Explain your answer. You are given the balance sheets of Blue Bank and Red Bank now. Both banks are based in U.S.A. Suppose the LIBOR rate is 4% now. All the deposits and loans of these banks are in U.S. dollars. a) Suppose the LIBOR rate goes up to 6% year from now. (i) Will Blue Bank gain or lose money? Why? (ii) Will Red Bank gain or lose money? Why? (iii) What do we call the risk that both banks are exposed to? b) If both banks want to hedge their risks, what kind of arrangement will they make? Explain your