Bank entered a plain vanilla swap through on OIS (Overnight Index Swap) on a principal of 20 crores and agreed to receive MIBOR overnight floating…
CA Final · Advanced Financial Management · MTP · May 2024
Bank entered a plain vanilla swap through on OIS (Overnight Index Swap) on a principal of 20 crores and agreed to receive MIBOR overnight floating rate for a fixed payment on the principal. The swap was entered into on Monday, 2nd August 2020 and was to commence on 3rd August 2020 and run for a period of 7 days. Respective MIBOR rates for Tuesday to Monday were: 7.75%, 8.15%, 8.12%, 7.95%, 7.98% and 8.15%. If Bank received 634net on settlement, calculate the applicable Fixed rate for the same swap period. Notes: (i) Sunday is Holiday. (ii) Work in rounded rupees and avoid decimal working. (iii) Consider 365 days a year.
Suggested Answer and Working Notes:
Day Principal (₹) MIBOR (%) Interest (₹) Tuesday 20,00,00,000 7.75 42,466 Wednesday 20,00,42,466 8.15 44,667 Thursday 20,00,87,133 8.12 44,513 Friday 20,01,31,646 7.95 43,590 Saturday & Sunday (*) 20,01,75,236 7.98 87,529 Monday 20,02,62,765 8.15 44,716 Total Interest @ Floating 3,07,481 Less: Net Received 634 Expected Interest @ fixed 3,06,847 Thus, Fixed Rate of Interest 0.08 Shall be approx. 8% (*) i.e. interest for two days.
Topics: Interest Rate Risk Management
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