CMA Final · Strategic Financial Management · Swaps
A fixed-for-floating swap has notional Rs 50 crore, with semi-annual settlement. The fixed rate is 8% p.a. and the floating reference rate resets at 9% p.a. for the period. The fixed payer's net settlement for the half-year is:
The fixed payer receives a net Rs 25 lakh. The floating rate of 9% exceeds the fixed 8% by 1% per annum, which is 0.5% for six months on Rs 50 crore.
- AReceives Rs 25 lakhCorrect
- BPays Rs 25 lakh
- CReceives Rs 50 lakh
- DPays Rs 50 lakh
Explanation
Rate difference = 9% - 8% = 1% p.a.; for a half-year this is 0.5%. 0.5% of Rs 50 crore = Rs 25 lakh. The fixed payer receives floating 9% and pays fixed 8%, so it receives the net amount. Using a full year would give Rs 50 lakh, which is wrong.
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