CMA Final · Strategic Financial Management · Swaps
A 1-year interest rate swap has quarterly settlements on a notional of Rs 20 crore. The fixed rate is 8% p.a. and the floating rate for the quarter is 9.2% p.a. Assuming a simple quarterly rate of annual rate/4, what is the net settlement for that quarter received by the fixed-rate payer?
The fixed-rate payer receives Rs 6,00,000. The floating rate exceeds the fixed by 1.2% a year, which is 0.3% for one quarter, applied to the Rs 20 crore notional. Only the net difference is exchanged, not the gross interest amounts.
- ARs 6,00,000Correct
- BRs 24,00,000
- CRs 1,20,000
- DRs 3,00,000
Explanation
Rate difference = 9.2% - 8% = 1.2% p.a. Quarterly = 1.2%/4 = 0.3%. Settlement = 20 crore x 0.3% = Rs 6,00,000, received because floating exceeds fixed. Rs 24,00,000 ignores the quarter adjustment on the full annual difference.
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