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Currency swaps – fixed vs variable

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Currency swaps – fixed vs variable

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • July 8, 2024 at 7:01 pm #708052
    Aleksandra19900107
    Participant
    • Topics: 22
    • Replies: 28
    • ☆☆

    Dear Sirs,

    Could you please help me to understand how discount factor is calculated in currency swaps example with fixed payments for 6 months and variable spot rates and variable %.

    In the study hub they show interest for the second month as 4,38%*2/12 = 0,73%

    But then for DF calculation they do 1/1,0073.

    I wonder why is not 1/(1,0073*1,073)?

    What is the overall logic in those tasks? (Study hub 14.3.5. Activity 9)

    Thank you!

    July 9, 2024 at 9:56 am #708121
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    The interest for the 2 month period is 0.73% and so to discount for the 2 months the factor is 1/1.0073

    It would only be 1/ (1.0073 x 1.0073) had 0.73% been the monthly interest rate, but that is not the case – it is the 2 monthly rate.

    July 9, 2024 at 5:55 pm #708137
    Aleksandra19900107
    Participant
    • Topics: 22
    • Replies: 28
    • ☆☆

    Thank you Mr. Moffat!

    July 10, 2024 at 8:32 am #708149
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Currency swaps – fixed vs variable’ is closed to new replies.

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