After conducting a rate$-$sensitive analysis, a bank finds itself with the following amounts of rate$-$sensitive assets and liabilities $($RSAs and RSL$)$ and fixed$-$rate assets and liabilities $($FRAs and FRLs$)$; the rate of return and cost rates on the accounts are also given:

Assets Amount

$($million $$)$ Liabilities

& Equity Amount

$($million $$)$

RSAs @ $4\mathrm{.}25\%$ $ $322$ RSLs @ $3\mathrm{.}11\%$ $ $200$

FRAs @ $5\mathrm{.}15\%$ $ $700$ FRLs @ $4\mathrm{.}95\%$ $ $800$

NEA $ $120$ Equity $ $142$

Total $ $1,142$ Total $ $1,142$

If the bank wishes to set up a swap to totally hedge the interest rate risk, the bank should

Multiple Choice

pay a variable rate of interest and receive a fixed rate of interest.

pay a fixed rate of interest and receive a variable rate of interest.

pay a variable rate of interest and receive a variable rate of interest.

pay a fixed rate of interest and receive a fixed rate of interest.

None of the options are correct.