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The table below shows the payments on the swap for a hypothetical
scenario of the 6-month LIBOR rate over the life of the swap. In
this example, F has promised to pay to L a semiannual interest
payment calculated on the basis of a notional principal of $1
million and a fixed 5-percent interest rate as adjusted by a
ratio the numerator of which equals the number of days in the
payment period and the denominator of which equals 360. L has
promised to pay to F a semiannual interest payment calculated on
the basis of the same $1 million amount but using, instead of the
fixed rate, a floating 6-month LIBOR rate as adjusted by the same
ratio. The sixth column, the net of the fixed and floating
payments, is the only amount that is actually paid by one party
or the other.
Number of
Payment Days in Fixed Hypothetical Floating Net Cashflow
Dates Period Payment 6-Month LIBOR Rate Payment To L (To F)
6/1/1993 182 $25,278 4.0% $20,222 ($5,056)
12/1/1993 183 25,417 4.320 21,960 (3,457)
6/1/1994 182 25,278 5.130 25,935 657
12/1/1994 183 25,417 5.901 29,997 4,580
6/1/1995 182 25,278 6.210 31,395 6,117
12/1/1995 183 25,417 6.842 34,780 9,363
D. Currency Swaps
A plain vanilla currency swap involves the exchange of a
series of fixed-rate interest payments denominated in a foreign
currency for a series of floating-rate interest payments
denominated in U.S. dollars. Other currency swaps include
exchanging a fixed rate in a foreign currency for a fixed rate in
U.S. dollars, exchanging a fixed rate in U.S. dollars for a
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