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Sir,
Why do we subtract 2000 from the 4040 year 3 cash flow?
We convert 2000 @ the current spot rate and the 2040 at the relevant inflated rate.I have not quite understood what they mean when they say ” swap of principle immediately AND in 3 years time at the current spot rate”.
I understand that the above line in quotes is related to the deduction of 2000(converted separately) from the 4040 but i do not know why.
Can you please clarify ?The agreement (as per the question) is that they agree to swap 2,000 now at the current spot rate, and then to swap the 2,000 back at the end of three years, again at the current spot rate.
It is only the other flows that are converted at whatever the spot rate happens to be on the relevant date,
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