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gammaslide
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Joined: January 20th, 2010, 7:08 pm

practical and basic question on loan and swap and cross currency

October 8th, 2011, 6:40 pm

Hi..This is a bit of a basic question in a practical setting.If I could take a loan in euros say fixed rate at 6% (say 10 year loan semi-annual payments), how do I calculate the equivalent yield/rate in usd, (I am a company in the us, which cares about things in us dollars).I assume I need to solve for the usd side of a fixed-fixed cross currency swap (to replicate the cash flows in order to pay the euro loan).So how do I arrive a ther answer. So a fixed-fixed cross-currency swap is two vanilla fixed-floating IR swaps and a cross-currency basis swap right.So say euor 10yr swap rate is 2% and usd swap rate is 1.5%, and the 10year ccxy swap is -20bps.Is the answer roughly (and i mean roughly) 6%- (2% - 1.5% +0.2%) = 5.7%5.7% is the equivalent cost of the loan in usd?Am i neglecting something? like the discounting effect of the shape of both curves etc?cheers