On January 15th 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 year.
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 |
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