CMA Final · Strategic Financial Management · Swaps
A 1-year plain vanilla swap has notional Rs 20 crore, semi-annual settlement. Party A pays fixed 7% p.a. and receives 6-month MIBOR. At the first reset, 6-month MIBOR is 7.6% p.a. (annualised). Ignoring day-count refinements, what is the net settlement for the first period?
Party A receives Rs 6 lakh. Floating at 7.6% exceeds fixed at 7% by 0.6% annually; on Rs 20 crore for half a year this is Rs 6 lakh, payable to the floating receiver, A.
- AA receives Rs 6 lakhCorrect
- BA pays Rs 12 lakh
- CA pays Rs 6 lakh
- DA receives Rs 12 lakh
Explanation
Net rate difference = 7.6% - 7% = 0.6% p.a. For six months: 20 crore x 0.6% x 0.5 = Rs 6 lakh. A receives floating, which is higher, so A receives. Rs 12 lakh forgets the half-year factor.
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