Question

Currency Swap Pricing On August 15th, 2013, ABC bank negotiated a 2-year currency swap with TRI Corp., paying Euro fixed and receiving USD floating with a notional principal of $100 million. The semi-annual settlement is on every February 15 and August 15 until maturity. The spot FX rate on 8/15/2013 is $1.33 per €1.00. The term structure of interest rates on 8/15/2013 are in the table below. The day count method used is 30/360. A. What is the notional principal in euro? B. What is the fixed rate in euro? C. What is the amount in euro ABC bank has to pay on Feb 15, 2014? D. What is the amount in U.S. dollar TRI Corp. has to pay on Feb 15, 2014?

	Notional principal	$100,000,000
	FX rate	$1.33	per €1.00
	Day count	30	360
	Settlement Period	180
	Term Structure of Interest Rates		8/15/2013
	Maturity	LIBOR (US $)	EURIBOR
	#######	6.20%	6.00%
	#######	6.30%	6.50%
	#######	6.70%	6.50%
	#######	7.00%	7.00%

Answer 1

Solution:- A. What is the notional principal in euro?

Notional Principle in Dollar = $100,000,000

Exchange rate = $1.33 per Euro

Notional Principle in Euro = $100,000,000 / $1.3 = 75,000,000 Euro.

Notional Principle in Euro is $75,000,000 Euro.

b. What is the fixed rate in euro?

Fixed Rate in Euro is 6%.

c. What is the amount in euro ABC bank has to pay on Feb 15, 2014?

Amount ABC paid in Euro = 75,000,000 Euro × 6% *6/12 (for six month period) = 2,250,000 Euro.

Amount ABC paid in Euro is 2,250,000 Euro.

d. What is the amount in U.S. dollar TRI Corp. has to pay on Feb 15, 2014?

Amount TRI corporation Pays = $100,000,000 × 6.20% *6/12 (for six month period = $3,100,000

Amount TRI Corp. has to pay on 2/15/2014 is $3,100,000.