Amortizing Floating for Floating Currency Swap
In an amortizing swap, the principal reduces in a predetermined way. For our illustration we assume that the principal reduces by 25% in each period. The rest of the parameters and assumptions are the same as for the floating for floating currency swap given above.
The amortization schedule is as follows:
| Period | USD | JPY |
| 1 | 10,000,000 | 910,000,000 |
| 2 | 7,500,000 | 682,500,000 |
| 3 | 5,000,000 | 455,000,000 |
| 4 | 2,500,000 | 227,500,000 |
The results are as follows:
| Paying Leg-USD | Receiving Leg- JPY | ||||||||
| Period End | Notional | Redeemed | Rate | Cash flow (Interest + redemption) |
Notional | Redeemed | Rate | Cash flow (Interest + redemption) |
Dollar Value of Yen Cash flow |
| 01/01/11 | 10,000,000 | 2,500,000 | 1.20% | 2,570,685 | 910,000,000 | 227,500,000 | 1.47% | 235,379,603 | 2,594,602 |
| 01/01/12 | 7,500,000 | 2,500,000 | 1.23% | 2,592,119 | 682,500,000 | 227,500,000 | 1.30% | 236,380,407 | 2,624,485 |
| 01/01/13 | 5,000,000 | 2,500,000 | 1.67% | 2,583,517 | 455,000,000 | 227,500,000 | 1.33% | 233,566,421 | 2,622,572 |
| 01/01/14 | 2,500,000 | 2,500,000 | 2.38% | 2,559,383 | 227,500,000 | 227,500,000 | 1.73% | 231,430,776 | 2,635,861 |
| Period End | Net Cash Flow | Present Value of Net Cash Flow |
| 01/01/11 | 23,917 | 23,749 |
| 01/01/12 | 32,366 | 31,749 |
| 01/01/13 | 39,055 | 37,681 |
| 01/01/14 | 76,478 | 72,077 |
| Price | 165,256 |
The Cash flow for the period comprises on the interest payment plus the redemption amount. The interest payment is based on the outstanding notional amount at the beginning of the period, prior to principal redemption for the period. For example for the period ended 1/1/2012 the Cash flow for the USD leg is 1.23%*7500000+2500000=USD2,592,119.
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