If the bank wishes to set up a swap to totally hedge the interest rate risk, the bank should
A) pay a variable rate of interest and receive a fixed rate of interest.
B) pay a fixed rate of interest and receive a variable rate of interest.
C) pay a variable rate of interest and receive a variable rate of interest.
D) pay a fixed rate of interest and receive a fixed rate of interest. Risk is from falling interest rates or rising prices with a positive repricing gap.
Correct Answer:
Verified
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