AFMQ70 Kaplan revision kit Dec 04 - Currency Swap

I do not have a Kaplan Kit, but I assume that you mean the question 'Galeplus'? If Galeplus were to borrow floating then they would have to pay P + 2%. If counterparty were to borrow fixed, then they would pay 8.3% So in total they would be paying P + 2% + 8.3% = P + 10.3% On the other hand, if Galeplus were to borrow fixed they would pay 6.25% and if the counterparty were to borrow floating they would pay P + 1.5%. So in total they would be paying 6.25% + P + 1.5% = P + 7.75% So if they were to borrow in the opposite currencies (and then swap - i.e. pay each other's interest) then they could save (P + 10.3%) - (P + 7.75%) = 2.55% (The reason for the saving is that Galeplus can borrow cheaper in the UK and the counterparty can borrow cheaper in Persia). There is a banks fee of 0.75%, but this still leaves a saving of 2.55 - 0.75 = 1.80% which they can share between them as per the arrangement in the question.

thank you somuch!! God Bless!!

You are welcome :-) (In future, if you want me to answer then please ask in the P4 Ask the Tutor Forum. This forum is for students to help each other)

Sir, is currency swap calculation done the same way as interest rate swap?

Yes - apart from the fact that obviously currencies need exchanging (but exam questions always state the 'rules' that have been agreed between the parties for this).