Derivatives Blue Box Question Currency Swaps

CFA Level II
#1

The swaps part is really confusing me. It would be really great if someone who has recently solved this question could possibly help me.

The question that I have doubt in is the Example 16 (Currency swap valuations with Spot rates) on Pg 317.

The solution says that the value of swap is:

100,000,000[0.027695(3.967683) + 0.986031] – 1.13(87,719,298)[0.002497(3.994841) + 0.998336]

Shouldn’t it be :

100,000,000[(0.027695/4)(3.967683) + 0.986031] – 1.13(87,719,298)[(0.002497/4)(3.994841) + 0.998336]

Because the coupons are being paid quarterly and the rates 2.7695% and .2497% are annual.

Thanks in advance.

#2

I’m not sure because i usually don’t use the formula when I value a swap (because it’s a bad boy, as Darren Degraaf would say), but the 3.967683 and 3.994841 times the notional times the rate are like the present values of the remaining four coupons i think?, so they are like the coupons value you would be receiving for the entire year of the swap, I think in that case you should not unannualized the rates.

Please correct me someone if i’m wrong

#3

Steve11 you are correct, see errata:

https://www.cfainstitute.org/Eratta/2017_level_II_errata.pdf