CFA Practice Question

CFA Practice Question

Two parties A and B enter into a Currency Swap on July 1, 20X2. A agrees to make payments to B for a 4 year $50 M face value bond with a coupon rate of 4.75% and semi-annual coupons. In exchange B agrees to make payments to A for a 4 year GBP 25 M face value bond with coupon rate 4.9%. On July 1, 20X6, the spot exchange rate is $1.88 per GBP1. What is the next cash flow to B on July 1, 20X6 from the currency swap?
A. $25,575,000
B. $3,036,000
C. $25,612,500
Explanation: Payment from A to B = $50 M * (1 + (0.0475/2)) = $51,187,500 Payment from B to A = GBP25 M * (1 + (0.049/2)) = GBP25,612,500 Net Payment in $ = $51,187,500 - $25,612,500 * 1.88 = $3,036,000

User Contributed Comments 3

User Comment
mindi do you net currency swap payments?
CFunder no you don't net currency payments.
reganbaha you can net when they have been converted to the same currency.
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