Question: After conducting a rate-sensitive analysis, a bank finds itself with the following amounts of rate-sensitive assets and liabilities (RSAs and RSLs) and fixed-rate assets and

After conducting a rate-sensitive analysis, a bank finds itself with the

AssetsAmount (million $)Liabilities & EquityAmount (million $)RSAs @ 4.25%$ 322RSLs @ 3.11%$ 200FRAs @ 5.15%$ 700FRLs @ 4.95%$ 800NEA$ 120Equity$ 142Total$ 1,142Total$ 1,142

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

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

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

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

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

None of the options are correct.

After conducting a rate-sensitive analysis, a bank finds itself with the following amounts of rate-sensitive assets and liabilities (RSAs and RSLs) and fixed-rate assets and liabilities (FRAs and FRLs). The rate of return and cost rates on the accounts are also given in the following table: If the bank wishes to set up a swap to totally hedge the interest rate risk, the bank should: pay a variable rate of interest and receive a variable rate of interest. pay a variable rate of interest and receive a fixed rate of interest. pay a fixed rate of interest and receive a fixed rate of interest. pay a fixed rate of interest and receive a variable rate of interest. None of the options are correct

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