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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:

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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