Currency swap (Exchange or not of currencies at expiration)

CFA Level II Portfolio Management
#1

Hi,

I am doing the 2015 Level II Mock exam and Im struggling with the following.

Exercise 31" Using the spot rate shown in Exhibit 1, on 1 April 2013, the market value of the currency swap described in Alternative 1 (its a 12 moth fixed to fixed currency) from POL’s perspective is closes to":

You calculate the Market value to POL as PV of payments received - PV of payments made.

Exercise 32: " Assume POL and IIG enter into the IRSwap descirbed in Alternative 1, and the rates shown in Exhibit 1 materialize as projected. On 1 April 2014, the market value to POL of the final exchange payments is":

My issue is that for exercise 31 you do not exchange the currencies using the predcited exchange rate in 12 months, but for exercise 32 you do.

Why is it so?

#2

To fully understand these two problems, I found it help to draw timelines at each step of the way. With regard to which rates to use, it appears to be as simple as #31 is asking for the market value at April 2013 (so in the final step, use the April 2013 exchange rate of 4.2), and #32 is asking about the market value at April 2014 (so in the final step, use the April 2014 exchange rate of 3.75). If you read through the solution and draw timelines for each step of the way, I found that the main takeaways were fairly intuitive.