The cash flows associated with the swap now: 98.75 x 10,000,000 = Y987,500,000. The cash flows associated with the swap 2 months later (with promise to buy $ back): 98.69 x 10,000,000 = Y986,900,000.
The cash flows or liabilities from two separate financial instruments are exchanged between two parties through a derivative contract known as a swap. Almost any type of instrument can be used in a swap, but they typically entail cash flows based on a notional principal amount, such as a loan or bond. Typically, the principal is not transferred. The first cash flow is typically constant, but the second is variable and dependent on a benchmark interest rate, a floating currency exchange rate, or an index price.
Interest rate swaps are the most prevalent sort of swap. Swaps are not traded on exchanges, and retail investors often avoid them. Instead, swaps are over-the-counter (OTC) agreements that are made specifically for business or financial institutions and are based on the demands of both parties.
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