Fromage, a French firm wants to finance an AUD 52 millionexpansion in Australia. The firm could raise EUR 40 million in theEuro capital markets at 6% while its cost of borrowing in Australiawould be 9%. A Swap bank has arranged a currency swap withAustralian firm Bega that is looking to raise EUR 40 million. Begafaces a borrowing rate of 8% on $52 million in Australia and 7% inthe Eurobond market. The Swap bank quotes AUD swaps at 8.00 – 8.20and EUR swaps at 6.00 – 6.15. The spot rate is 1.3 AUD = 1 EUR. a.What will the benefit (in AUD) of the swap be for the swap bank? b.What is the most significant risk faced by the Swap bank? What isthe most significant risk faced by the two counterparties? Which ofthese risks do you think is more significant? D