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

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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.