Topic test - Derivatives - Kesselaar

[thtsejacgmail.com]

For the question valuing the currency swap below, why do they use the exchange rate on 1-Apr-13, and not 1-Apr-14 (when POL returns the euro to IIG [highlighted below]) ? Swap is driving me crazy…
Using the spot rates shown in Exhibit 1, on 1 April 2013, the market value of the currency swap described in Alternative 1 from POL’s perspective is

 

[AmruthSundarkumar]

You’re valuing the swap as on April ‘13 not as on Apr’14… The fx rate has to correspond to April’13 only right! Why the confusion, Simple isn’t it?

 

[inchvbeam]

May I check how is the overnight interest rates used in this question for valuing the currency swap? Is OIS rate a kind of LIBOR?

 

[S2000magician]

At the end of a currency swap, the parties return exactly the notional amounts that they traded at the inception of the swap, so the exchange rate is de facto the exchange rate at inception.

 

[inchvbeam]

Hi sorry, appreciate if anyone could explain the bit on the use of Overnight interest Rates in this questions?

 

[inchvbeam]

Sorry to bump this, much appreciate if anyone can assist, thank you.