CMA Final · Strategic Financial Management · Swaps
Ishaan Ltd has Rs 10 crore of USD-linked debt costing 5% in dollars and wants to convert it into rupee debt via a currency swap. The initial exchange is at Rs 80 per USD, so the principal is USD 12.5 lakh. At maturity the swap re-exchanges at the same rate. In the swap Ishaan pays rupee interest at 9% and receives USD interest at 5%. What annual rupee interest does Ishaan pay under the swap?
Ishaan pays Rs 90 lakh each year. Rupee interest at 9% is charged on the rupee principal of Rs 10 crore, while the 5% dollar interest received on USD 12.5 lakh matches the interest on its underlying dollar debt.
- ARs 90 lakhCorrect
- BRs 50 lakh
- CRs 45 lakh
- DRs 9 crore
Explanation
Rupee interest is computed on the rupee principal: 9% x Rs 10 crore = Rs 90 lakh. Rs 50 lakh is 5% of Rs 10 crore, wrongly applying the dollar rate to the rupee principal. Rs 45 lakh is a half-year amount.
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