CMA Final · Strategic Financial Management · Swaps
A company has a 1-year-remaining swap on Rs 10 crore notional in which it receives fixed 8% and pays floating, with semi-annual settlements. The next settlement is in 6 months, and the floating rate for that period was fixed at 6% p.a. at the last reset. Ignoring discounting, what is the net amount the company receives at the next settlement?
The company receives Rs 10 lakh. Fixed receipt for half a year is Rs 40 lakh, floating payment is Rs 30 lakh, and the net difference of Rs 10 lakh is settled, since only the net amount is exchanged on the notional.
- ARs 10 lakhCorrect
- BRs 20 lakh
- CRs 5 lakh
- DRs 1 lakh
Explanation
Fixed receipt = 10 crore x 8% x 0.5 = Rs 40 lakh. Floating payment = 10 crore x 6% x 0.5 = Rs 30 lakh. Net receipt = Rs 10 lakh. Rs 20 lakh results from using the annual rate difference without halving.
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