MN Bank entered into a plain Vanilla Swap through an, OIS (Overnight Index Swap) on a principal of 5 crores and agreed to receive MIBOR overnight…

CA Final · Advanced Financial Management · PYQS · November 2024
MN Bank entered into a plain Vanilla Swap through an, OIS (Overnight Index Swap) on a principal of 5 crores and agreed to receive MIBOR overnight floating rates for a fixed payment on the principal. The swap was entered into on Monday 2 nd August and was to commence on 3 rd August and run for a period of 7 days. Respective MIBOR rates for Tuesday to Monday were 8.00%, 8.25%, 8.15%, 7.90%, 7.95%, 8.15%. MN Bank received 275net of settlement. Working is to be rounded off. Bank does not accept decimal values. You are required to calculate the fixed rate and Interest under both legs where Sunday is holiday.

Suggested Answer and Working Notes:

Day Principal (₹) MIBOR (%) Interest (₹) Tuesday 5,00,00,000 8.00 10,959 Wednesday 5,00,10,959 8.25 11,304 Thursday 5,00,22,263 8.15 11,169 Friday 5,00,33,432 7.90 10,829 Saturday & Sunday (*) 5,00,44,261 7.95 21,800 Monday 5,00,66,061 8.15 11,179 Total Interest @ Floating 77,240 Less: Net Received 275 Expected Interest @ fixed 76,965 Thus, Fixed Rate of Interest 0.0802635 Approx. 8.03% Alternatively, if students have assumed 360 days a year then solution will be as follows: Day Principal (₹) MIBOR (%) Interest (₹) Tuesday 5,00,00,000 8.00 11,111 Wednesday 5,00,11,111 8.25 11,461 Thursday 5,00,22,572 8.15 11,325 Friday 5,00,33,897 7.90 10,980 Saturday & Sunday (*) 5,00,44,877 7.95 22,103 Monday 5,00,66,980 8.15 11,335 Total Interest @ Floating 78,315 Less: Net Received 275 Expected Interest @ fixed 78,040 Thus, Fixed Rate of Interest 0.0802697 Approx. 8.03%

Topics: Interest Rate Risk Management

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