24-88 at the End of the Year 2,the Exchange Rate

question 47

Multiple Choice

24-88 At the end of the year 2,the exchange rate is €1/$.What are the losses and gains to each bank as a result of this swap.Ignore principal payments and compare it to the scenario where it did not engage in the swap.

• A)With the agreement,Bank Dresdner pays €2.5 million less while Bank USA pays $1.25 more.
• B)With the agreement,Bank Dresdner pays €2.5 million more while Bank USA pays $2.5 million less.
• C)With the agreement,Bank USA pays $3.75 million less while Bank Dresdner pays €7.5 million more.
• D)With the agreement,Bank USA pays $3.75 million more while Bank Dresdner pays €7.5 million less.
• E)Each bank pays the same because the exchange rate affects both parties equally