Derivative Bank entered into a plain vanilla swap through on OIS (Overnight Index Swap) on a principal of 15 crores and agreed to receive MIBOR…

CA Final · Advanced Financial Management · MTP · May 2025
Derivative Bank entered into a plain vanilla swap through on OIS (Overnight Index Swap) on a principal of 15 crores and agreed to receive MIBOR overnight floating rate for a fixed payment on the principal. The swap was entered into on Monday, 31st July 2023 and was to commence on 1st August 2023 and run for a period of 7 days. Respective MIBOR rates for Tuesday to Monday were: 8.12%, 7.75%, 7.95%, 8.10%, 8.12%, 8.15% If Derivative Bank received 1420net on settlement, calculate Fixed rate and interest under both legs. 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:

Calculation of Floating Interest Leg: Principal (₹) MIBOR (%) Interest (₹) Tuesday 15,00,00,000 8.12 33,370 Wednesday 15,00,33,370 7.75 31,856 Thursday 15,00,65,226 7.95 32,685 Friday 15,00,97,912 8.10 33,309 Saturday & Sunday (*) 15,01,31,221 8.12 66,798 Monday 15,01,98,019 8.15 33,537 Total Interest @ Floating 231,555 (*) i.e. interest for two days. Net Received by Derivative Bank = 1420 Floating Interest Received by Derivative Bank = 231,555 Fixed Interest Paid by Derivative Bank = Floating Interest - Net Received = 231,555 -1420 = 230,135 Fixed Rate = (Fixed Interest Paid / Principal) × (365 / Number of days) Number of days = 7 (Tuesday to Monday, including Saturday & Sunday as 2 days for interest calculation) Fixed Rate = (230,135 / 15,00,00,000) × (365 / 7) = 0.00153423 × 52.142857 = 0.08000000000000002 ≈ 0.08 or 8% Thus, Fixed Rate of Interest = 8%

Topics: Interest Rate Risk Management

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