towardsutopia21

Consider a 3year annual currency swap that takes place between a foreign firm(FF) with FC currency units and a United States Firm (USF) with $ currency units. USF is the fixedrate payer and FF is the floating rate payer. The fixed interest rate at the initiation of the swap is 7%, and 8 % at the end of swap. The variable rate is 5% currently; 6% at the end of year1;8% at the end of year 2; and 7% at the end of year 3. At the beginning of the swap, $1.0 million is exchanged at an exchange rate of FC2.0=$1.0. At the end of the swap period the exchange rate is FC 1.5=$1.0.
Beginning
USF pays FC 1 Million $
FC pays USF 2 Million FC
At the end of Year 2:
Interest rates for FC would be applied to the 1Mill $, For the USF on the 2 Million FC
Fixed USF Interest rate is 7%, so USF Pays FC = 2000000 * 7% = 140000FC
Floating FC Interest rate is 6% end of Year 1. So Year 2 Payment for FC = 1 Million $ * .06 = 60000$ Ans.
At the end of Year 3:
Fixed Rate: 8%
Floating Rate: 8% end of Year 2.
So Floating Payment = 1 Million $ * 8% = 80000$
also the notional amount of 1 Million $ is returned.
So total payment = 1080000 $.