Simple FX Swap valuation

smashgh

New Member
Hi Guys,

New to the forum. Reading through a textbook on derivatives and can't understand how they got to a number of $500 for this FX Swap.

Any help much appreciated.
 

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hak

New Member
Just compute the PV of each leg in dollar terms.
you are making USD333 on EUR leg (spot rate *(pv of (EUR750750)-EUR750000)) and loosing USD833 on dollar leg (USD1m -pv of (USD1m))
 

smashgh

New Member
Just compute the PV of each leg in dollar terms.
you are making USD333 on EUR leg (spot rate *(pv of (EUR750750)-EUR750000)) and loosing USD833 on dollar leg (USD1m -pv of (USD1m))
Hi Hak,

Thanks for that.

To get those numbers you'd have to be discount EUR cashflows by the USD interest rate (0.8%) and the USD cashflows by the EUR rate (1%)?

Also, don't you make money on USD cashflows as you are discounting a future negative cashflow?
 

hak

New Member
apologies. Yes, something is wrong. transaction makes +USD667 on USD leg and +USD167 on EUR leg.
I am assuming those interest rates are annual rather than monthly?
 

smashgh

New Member
apologies. Yes, something is wrong. transaction makes +USD667 on USD leg and +USD167 on EUR leg.
I am assuming those interest rates are annual rather than monthly?
Yep probably a misprint in the textbook
 
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