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Online Finance – Pricing a Cross Currency Swap – Amortizing and Indexed Term sheets

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:

PeriodUSDJPY
110,000,000910,000,000
27,500,000682,500,000
35,000,000455,000,000
42,500,000227,500,000

The results are as follows:

Paying Leg-USDReceiving Leg- JPY
Period EndNotionalRedeemedRateCash flow
(Interest
+ redemption)
NotionalRedeemedRateCash flow
(Interest
+ redemption)
Dollar Value
of Yen
Cash flow
01/01/1110,000,0002,500,0001.20%2,570,685910,000,000227,500,0001.47%235,379,6032,594,602
01/01/127,500,0002,500,0001.23%2,592,119682,500,000227,500,0001.30%236,380,4072,624,485
01/01/135,000,0002,500,0001.67%2,583,517455,000,000227,500,0001.33%233,566,4212,622,572
01/01/142,500,0002,500,0002.38%2,559,383227,500,000227,500,0001.73%231,430,7762,635,861
Period EndNet Cash FlowPresent Value of Net Cash Flow
01/01/1123,91723,749
01/01/1232,36631,749
01/01/1339,05537,681
01/01/1476,47872,077
Price165,256

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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