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2. Bank Ypsilanti made $300m on of floating rate loans yielding the T-bill rate plus 3%. They also issued fixed rate Certificates of Deposits (CD) offering 10% interest. Bank Ann Arbor made $300 million of fixed rate mortgages at 12% interestrates. They pay T-Bill plus 1% interest on their savings account. A. Who is adversely affected: When interest rates go down? Why? When interest rates go up? Why? B. To hedge both the banks decided to enter into a swap agreement with each other for a notional amount of $300 million. Which bank will buy swap? Who Bank will sell a swap? C. Propose a swap that hedges both the banks from interest rate risk. What is NII of Bank Ypsilanti? What is NII of Bank Ann Arbor? What is their combined NII? D. How should they distribute their combined NII? (You may suggest any distribution as long as that is reflected in the swap) E. Suggest a Swap: Bank Ypsilanti Ba Ann Arbor Receives: Pays