Currency Swaps - Easy Formula

CFA Level III
#1

Hi All,

Just wanted to share this easy formula for currency swaps, a topic which CFA over complicates and does not explain in an good way.

Foreign Notional Principal = (Foreign Cash Flow)( # / Foreign Swap Rate)

Domestic Notional Principal = (Foreign Notional Principal) (FX Rate)

Domestic Cash Flow = (Domestic Notional Principal) (Domestic Swap Rate / #)

Always remember DOMESTIC SWAP ON TOP

#2

You can use this formula to answer any currency swap question, just always remember to take the view of the investor.

Just write the formulas like that then plug in the variables and solve for X.

#3

Thanks for sharing! I have memorised the way the curriculum does it but yours looks much simpler!

what is # in your formula? By any chance - Do you have an example that you have already worked on and could share here please? Thank you! Don’t worry if you don’t have as wouldn’t want you to waste your time

#4

yeah if someone knows what the # is that would be amazing.

#5

im thinking its number of payment?

#6

is the period, whether the payments are quarterly, semi-annually, annually.

#7

how is this different from Montero topic test?