Swaps Case Studies

Step Action
1 This is an Individual Assignment
2 Calculate the Net calculations for Interest Rates and Equity Swaps for each reset date
3 You can assign the students Client A OR Client B
4 Get the students to submit the solutions via a word document onto LMS
5 Grade the students in LMS
 Interest Rate Swap Equity Swap
Long on Fixed Client A: Sold
Client A:
Short on Floating Client B: Bought
Short on Fixed Notional: €150m
Client B:
Long on Floating Reset: Quarterly
Notional: €50m Term: 10 years
Reset: Yearly Currency: EUR
Term: 10 years Equity Underlyer NIFTY (@5712)
Currency: EUR Floating: 3m MIBOR + 25bps
Fixed: 0.50% NIFTY
Floating: 3m EURIBOR + 10bps Reset Dates: 12-Jan-15 8,323.00
Reset Dates: 1-Feb-15 0.076 13-Oct-14 7,884.00
1-Feb-14 0.284 11-Jul-14 7,459.00
1-Feb-13 0.188 11-Apr-14 6,776.00
1-Feb-12 1.343 13-Jan-14 6,272.00
1-Feb-11 1.001
p

MIBOR
8.63 5.57%
8.88 5.70%
8.82 10.08%
9.33 8.04%
9.29 9.80%
Solution:
CLIENT A
Interest Rate Swap
Long on Fixed Reset Date
Client A:
Short on Floating Pay to Client B
Short on Fixed Receive From B
Client B:
Long on Floating Net cash flow
Notional: €50m
Reset: Yearly Reset Date
Term: 10 years Pay to Client B
Currency: EUR Receive From B
Fixed: 0.50% Net cash flow
Floating: 3m EURIBOR + 10bps 3m EURIBOR + 10bps
Reset Dates: 1-Feb-15 0.076 0.176 Reset Date
1-Feb-14 0.284 0.384 Pay to Client B
1-Feb-13 0.188 0.288 Receive From B
1-Feb-12 1.343 1.443 Net cash flow
1-Feb-11 1.001 1.101
Reset Date
Pay to Client B
A Receives 0.5% Fixed from B Receive From B
CLIENT A A pays 3m EURIBOR+10bps to B CLIENT B Net cash flow
i.e B Pays 0.5% Fixed to A
B receives 3m EURIBOR + 10bps from A Reset Date
Pay to Client B
Receive From B
Net cash flow
 CLIENT B

1-Feb-11 Reset Date 1-Feb-11

€50m*1.101% (€0.5505m) Receive from A €50m*1.101% €0.5505m
€50m*0.5% €0.25m Pay to Client A €50m*0.5% (€0.25m)
(€0.3005m) Net cash flow €0.3005m

1-Feb-12 Reset Date 1-Feb-12

€50m*1.443% (€0.7215m) Receive from A €50m*1.443% €0.7215m
€50m*0.5% €0.25m Pay to Client A €50m*0.5% (€0.25m)
(€0.4715m) Net cash flow €0.4715m

1-Feb-13 Reset Date 1-Feb-13

€50m*0.288% (€0.144m) Receive from A €50m*0.288% €0.144m
€50m*0.5% €0.25m Pay to Client A €50m*0.5% (€0.25m)
€0.106m Net cash flow (€0.106m)

1-Feb-14 Reset Date 1-Feb-14

€50m*0.384% (€0.192m) Receive from A €50m*0.384% €0.192m
€50m*0.5% €0.25m Pay to Client A €50m*0.5% (€0.25m)
€0.058m Net cash flow (€0.058m)

1-Feb-15 Reset Date 1-Feb-15

€50m*0.176% (€0.088m) Receive from A €50m*0.176% €0.088m
€50m*0.5% €0.25m Pay to Client A €50m*0.5% (€0.25m)
€0.162m Net cash flow (€0.162m)
Solution:

Equity Swap
Client A: Sold
Client B: Bought
Notional: €150m
Reset: Quarterly
Term: 10 years
Currency: EUR
Equity Underlyer NIFTY (@5712)
Floating: 3m MIBOR + 25bps
NIFTY MIBOR 3m MIBOR + 25bps
Reset Dates: 12-Jan-15 8,323.00 8.63 8.88
13-Oct-14 7,884.00 8.88 9.13
11-Jul-14 7,459.00 8.82 9.07
11-Apr-14 6,776.00 9.33 9.58
13-Jan-14 6,272.00 9.29 9.54

Client A will pay +ve return to client B

CLIENT A Client B will pay 3m MIBOR+ 25bps to client A CLIENT B
Client B will pay -ve returns to Client A
 CLIENT A CLIENT B
Currency
Reset date 13-Jan-14 €(millian) Reset date
Pays to Client B €150m*9.80% 14.7059 Receive frm client A
Receives from B €150m*9.54% 14.31 Pay to Client A
Net Cash Flow -0.3959 Net Cash Flow

Reset date 11-Apr-14 €(millian) Reset date

Pays to Client B €150m*8.04% 12.0536 Receive frm client A
Receives from B €150m*9.58% 14.37 Pay to Client A
Net Cash Flow 2.3164 Net Cash Flow
% changes in price of
equity underlyer
5.57% Reset date 11-Jul-14 €(millian) Reset date
5.70% Pays to Client B €150m*10.08% 15.1195 Receive frm client A
10.08% Receives from B €150m*9.07% 13.605 Pay to Client A
8.04% Net Cash Flow -1.5145 Net Cash Flow
9.80%
Reset date 13-Oct-14 €(millian) Reset date
Pays to Client B €150m*5.70% 8.5467 Receive frm client A
Receives from B €150m*9.13% 13.695 Pay to Client A
Net Cash Flow 5.1483 Net Cash Flow

Reset date 12-Jan-15 €(millian) Reset date

Pays to Client B €150m*5.57% 8.3524 Receive frm client A
Receives from B €150m*8.88% 13.32 Pay to Client A
Net Cash Flow 4.9676 Net Cash Flow
 Currency
13-Jan-14 €(millian)
€150m*9.80% 14.7059
€150m*9.54% 14.31
0.3959

11-Apr-14 €(millian)
€150m*8.04% 12.0536
€150m*9.58% 14.37
-2.3164

11-Jul-14 €(millian)
€150m*10.08% 15.1195
€150m*9.07% 13.605
1.5145

13-Oct-14 €(millian)
€150m*5.70% 8.5467
€150m*9.13% 13.695
-5.1483

12-Jan-15 €(millian)
€150m*5.57% 8.3524
€150m*8.88% 13.32
-4.9676