Currency Swap- Ilustration EUR USD

Old swap Receive USD

Pay EURO
Year 1 2 3
Cash flows USD 120 120 120
Cash flows EURO -80 -80 -80

Data IntRate (Cont) USD 4.00% 5.00% 6.00%

IntRate (Cont) EURO 2.00% 2.50% 3.00%
DF USD 0.961 0.905 0.835
DF EURO 0.980 0.951 0.914
Spot Exchange Rate= 1.25 USD/EURO
0.8000 EURO/USD
Decomposition into bonds
Value bond USD 324.11
Value bond EURO 259.29 1 2 3
Cash flow USD 120.00 120.00 120.00
PV USD 115.29 108.58 100.23

Value bond EURO -227.63 1 2 3

Cash flow EURO -80.00 -80.00 -80.00
PV EURO -78.42 -76.10 -73.11
Swap value EURO 31.66

Decomposition into forward contracts 120

1 2 3 0.835
Spot price underlying asset 92.24 86.86 80.19 100.2324
PV(Delivery Price) 78.42 76.10 73.11 0.8
Value of forward contracts 13.82 10.77 7.07 80.18594
Swap value 31.66

Valuation based on forward rates

Maturity 0 1 2 3
Forw.Ex.Rate = S(0)*exp((r-q)*T) 0.7842 0.7610 0.7311
Swap Ex.Rate 0.6667 0.6667 0.6667
Gain/Loss 14.10 11.32 7.74
PresValue 13.82 10.77 7.07
Swap value 31.66

Valuation based on new swap rates

Value foreign bond EURO 259.29
/ Sum DF 2.845
=Cash flow 91.13
0 1 2 3
+New swap 91.13 91.13 91.13
-Old swap -80.00 -80.00 -80.00
11.13 11.13 11.13
Present value 10.91 10.58 10.17
Swap value 31.66

Derivatives 2008 402774875.xls

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Derivatives 2008 402774875.xls