# Easy Swap?

A company enters into a currency swap in which it pays a fixed rate of 6 percent in dollars and the counterparty pays a fixed rate of 5 percent in €. the notionals are 75 million (in €) and 105 million (in \$). Interests are paid on an annually basis. Calculate the final exchange of payments that takes place at the end of the swap.

dollar payment = 105 million + 105 million (.06) = 111.3 million euro payment = 75 million + 75 million (.05) = 78.75 million is this a trick question or something?

cfaisok Wrote: ------------------------------------------------------- > A company enters into a currency swap in which it > pays a fixed rate of 6 percent in dollars and the > counterparty pays a fixed rate of 5 percent in €. > the notionals are 75 million (in €) and 105 > million (in \$). Interests are paid on an annually > basis. > > Calculate the final exchange of payments that > takes place at the end of the swap. what’s the duration of the Swap Contract, or should we assume 1 year currency-swap only? - Dinesh S

I don’t think the duration of the contract is relevant to this question. They are just asking what the final payment will be. The notional amount will be exchanged at the end of the swap along with the final year’s interest payment.

very true Mr_Clean, we don’t need the contract term. I think I am going a bit crazy… hence, the answer would be Notional Amount + last interest payment. - Dinesh S

Hey you 2, I think that notional + interests is the right answer, too. But CFAI talks only obout the notional: Have a look at Reading 74, practice problem number 1 C. (June 2008) The solution considers only the notionals…