Answered

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Assume that you have entered into a fixed for fixed currency swap agreement under which every 6 months you agree to pay 3% on a notional of 110M USD and receive 4% on a notional of 100M EUR. On the date you signed the contract the spot exchange rate is 1.1 USD/EUR. Six months later the spot exchange rate is 1.05 USD/EUR. Your actual payment net of what you receive at the first payment date equals to :__________

Sagot :

Answer: -0.55M USD

Explanation:

The payment made will be:

= 3%/2 × 110M USD

= 0.03/2 × 110M USD

= 1.65M USD

The amount received will be:

= 4%/2 × 100M EUR

= 2% × 100M EUR

= 0.02 × 100M EUR

= 2M EUR

Since exchange rate = 1.1 USD/EUR

2M EUR = 2 × 1.1 = 2.2M USD

Therefore, net payment will be:

= 1.65M - 2.2M

= - 0.55M USD

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