Floating rate payments on swaps

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Eltomzo

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LOSs c, d and e on R51 say we need to be able to calculate the fixed rate on swaps and also the mkt value of the swap, but don’t mention having to calculate the floating rate?
Can you obtain the mkt value without calculating the floating rate? I’m trying to understand why they don’t mention floating rates in the LOSs…
 
isn’t the floating rate just that, floating, therefore undefined. It’s the x factor. The guy who pays fixed know what he’s going to be paying in advance, the guy who pays floating is taking his chances and will see what happens, he doesn’t know in advance what the rate will be.
 
They’ll give you the floating rate, and at Level II it’ll always be LIBOR.
You calculate the fixed rate based on the LIBOR spot rates that exist at the inception of the swap. Those can change, of course, which is the reason you need to be able to value a swap (after inception).
 
Ok thanks.

In the explanation below, I’m trying to understand why is the MV of the remaining payments on day 90 is equal to 1? Is it due to the resetting rules of a swap? Just want to understand what’s behind it.
Excerpt from book below.

Now we must find the present value of the floating payments. Recall that on day 0, the 90-day LIBOR was 3.45 percent. Thus, the first floating payment will be 0.0345(90/360) = 0.0086. We know that we should discount this payment back 30 days, but what about the remaining floating payments? Remember that we know that the market value of the remaining payments on day 90, including the hypothetical final notional principal, is 1.0. So, we can discount 1.00 + 0.0086 = 1.0086 back 30 days to obtain 1.0086(0.9965) = 1.0051.
 
You are correct, this is because the value of the remaining floating rate payments immedsiately after a SWAP payment is equal to 1. In otherwords, the 1 is the principle amount.
 
If you think about a swap as an exchange of bonds – so a plain vanilla interest rate swap is an exchange of a fixed-rate bond for a floating-rate bond – then the value of the floating rate leg is easy to see. At a coupon reset date, a floating-rate bond paying market rate will reset to par. Always. Why? Go back to your Level I Fixed Income:
  • coupon < YTM, bond sells at a discount
  • coupon = YTM, bond sells at par
  • coupon > YTM, bond sells at a premium
 
The only difference between currency swaps and plain vanilla interest rate swaps is that you have to account for the exchange rate.
  • For a fixed-for-fixed currency swap, they’ll give you the fixed rate for one currency. Use that to calculate the PV of the fixed rate payments for that currency, convert that to the other currency at the spot exchange rate, then calculate the fixed rate for the other currency that gives that PV. The last step is the same as you would do for a plain vanilla interest rate swap.
  • For a fixed-for-floating currency swap, the PV of the floating-rate leg will be 1 (just as in a plain vanilla interest rate swap); convert that to the other currency at the spot exchange rate, then calculate the fixed rate as you would do for a plain vanilla interest rate swap.
  • For a floating-for-floating currency swap, the PV of each floating-rate leg is 1; you’re done (i.e., each side pays its floating rate (LIBOR, EUROBOR, whatever).
 
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