Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Interest Rate Swaps
- This topic has 5 replies, 2 voices, and was last updated 8 years ago by John Moffat.
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- November 27, 2016 at 3:08 pm #351896
sir i watched your lecture on swaps and also the revision lecture of chhumura co, found them to be amazing, i dont quite get one thing
in the examples on swaps on the lecture notes , companies would explicitly state that they would want which fixed Or floating,company x wants fixed and company y wants floating and this particular combination would create saving for them, and then we would find out the result of the swap based on if company x would pay fixed and company y pays floating without swap what would happen minus the savings ,
now in chhumura co, the saving is to be made if cmc pays fixed and counterparty floating, and then we should in results calculation minus the saving if cmc paid fixed and counterparty floating without swap, however you have taken floating for cmc and counterparty fixed , which i dont quite get? in the lectures and example wasnt it different?
November 27, 2016 at 6:01 pm #351937No – it is the same in the lectures.
If it is not made clear as to who wants floating and who wants fixed, then you have to check which way round would end up benefitting them and assume that it is that way round 🙂
November 27, 2016 at 9:33 pm #352001So sir in chhumura the saving is made if cmc pays fixed and counterparty floating, so why in the results calculation for thier own borrowing cmc as floating and counterparty as fixed?
November 28, 2016 at 6:35 am #352053The saving is made if CMC pays fixed and the counterparty pays floating.
So that is what they will do, and then they swap.
So it ends up with CMC paying floating and the counterparty paying fixed, but they save against if CMC had borrowed floating themselves.
November 28, 2016 at 7:11 am #352090Thats ok sir so , following the principle in the examples if company a wants fixed and company b wants floating, essentially they will take out the opposite and swap, so shouldnt in results calculation for company a we subtract the savings from floating and company b fixed?
November 28, 2016 at 2:09 pm #352161That is correct 🙂
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