ACCA ARTICLE ON CURRENCY SWAPS — OpenTuition Forums

Llasvegas9y ago

Hi John Many thanks for the lecture on interest rate swaps. I am reading the ACCA aticle on curreny swaps and noticed that the gain on swap is 1.6%, which is the saving from USA + EUROZONE. The lecture on interest rate swaps shows the gain as fixed - floating. Can you explain why the article adds to arrive at the gain figure and the lecture subtracts to arrive at the gain figure thanks

John MoffatTutor9y ago#1

They have just set it out differently (and in a less obvious way), thats all. (Although my lecture certainly does not show the gain as simply fixed - floating at all !!!!) If G borrowed fixed and E borrowed floating, the the total interest will be (E + 1.5%) + 4.5% = E + 6% If G borrows floating and E borrows fixed (and they swap) then the total interest will be 3.6% + (E + 0.8%) = E + 4.4% The gain from swapping is (E + 6%) - (E + 4.4%) = 1.6% Don't try and simply learn rules - understand the logic and you don't need any rules. :-)

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