Question

On January 15^th 2019 Snow Limited and Flood Limited agreed on a 1 year swap with quarterly settlement and the swap rate at 7% p.a. on notional principal of $1m. Snow Limited is the payer. The floating rate was set at BBSW which was 8% p.a. on January 15, 8.5% in April, 7% in July, 6.5% in October and 5% in January 2020.

Calculate the swap cash settlements between the two parties over the life of the swap. Assume an equal number of days in each quarter of the yea

Answer 1

Quater	Swap Rate	BBSW Rate	Rate Difference	Months	Amount	Difference Paid by
Jan 15 to March 31	7%	8%	1%	2.5	1000000 * 1% * ( 2.5 / 12 ) = 2083.33	Flood Limited
Apr - June	7%	8.5%	1.5%	3	1000000 * 1.5% * ( 3 / 12 ) = 3750	Flood Limited
July-Sept	7%	7%	0	3	1000000 * 0% * ( 3 / 12 ) = 0	-
Oct - Nov	7%	6.5%	-0.5%	3	1000000 * (-0.5%) * ( 3 / 12 ) = - 1250	Snow Limited
Jan1 - Jan 15	7%	5%	-2%	0.5	1000000 * (-2%) * ( 0.5 / 12 ) = - 833.33	Snow Limited