Reacciones dirradicalarias

This topic explains non-deliverable swaps and then describes how to use the associated templates in SWPM to price a non-deliverable swap.

A non-deliverable swap (NDS) is an agreement between two parties to exchange a stream of interest payments and the notional principal in one currency for another currency on a non-deliverable basis. An NDS is a synthetic instrument used to replicate the net cash flows of a currency coupon swap or cross-currency swap when one of the currencies is thinly traded, subject to exchange restrictions, or even non-convertible. Like a non-deliverable forward (NDF), the settlement value at each payment date is based partly on an agreed posted or dealer exchange rate.

An NDS is conceptually similar to a cross currency swap, except that there is no physical transfer of the underlying currency. A swap that is similar to an NDS is a non-deliverable forward, with the only difference being that settlement for both parties is done through a major currency. Non-deliverable swaps are used when the swap includes a major currency, such as the U.S. dollar, and a restricted currency, such as the Philippine peso or South Korean won. For example, if two companies enter into a currency swap for $1 million and one company is located in a country with a restricted currency, it means that payments due to the company in the restricted currency are converted into the major currency at the prevailing spot rate on each interest payment date and at maturity.

• An NDS may be the only viable option where one leg of the swap has a currency which is restricted, e.g., PHP, KRW,

TWD, etc.

• The NDS market is often more liquid in the longer tenors than the forward market.

• An NDS can be customized to suit individual objectives, e.g., reducing principal during the life of the contract.

An NDS can be used to:

• Synthetically convert a loan (fixed or floating) in a major currency to a loan with fixed payments in a restricted currency. • Allow the borrower to better match assets and liabilities in different currencies and with different cashflows and timing. • Allow the borrower to fund in the most efficient currency (USD or other major currency) but synthetically convert their ability

to match their asset/earnings.

• Synthetically convert an asset with earnings in a restricted currency into a major currency.

• Allow an asset manager to invest in an overseas market, where the asset has a known payout, and hedge the currency risk

from the investment.

• Suit individual objectives with customization, thereby lowering the risk associated with running mismatches.

Non-deliverable swaps are available as cross currency (NDS) and local interest rate swaps (NDIRS) with fixed/float, fixed/fixed and float/float.

You can use shortcuts (e.g., SWPM -NDS <Go>, SWPM -NDSFX <Go>, and SWPM -NDSFL <Go>) to access non-deliverable templates from the command line, or you can click the Products toolbar button to choose a template from a menu.

• For more information about shortcuts, see Shortcuts.

• For information about how to load templates from the toolbar, see Choosing a Template.

SWPM's non-deliverable swap templates are organized into seven tabs that allow you to set up and analyze the swap. You can structure and value your swap on the Main tab of the template, which is divided into four sections. You can input details of the swap in the Leg1, Leg2, and curve data sections, then evaluate the swap in the valuation section.

• Control Area: Allows you to navigate between tabs, analyze deals, set up scenarios, manage risk, generate trade tickets,

• Leg 1/Leg 2: Allows you to configure your settings for the legs of the deal. Depending on whether your swap is fixed-fixed

or fixed-float, different settings appear. You can enter, for example, the market side, notional amount (SWPM supports asymmetric notionals), currency, effective date, maturity, and the fixed coupon or the index used to calculate the floating rate for the deal (along with the reset frequency, pay frequency, tenor, and other details.) At the bottom of the section, the market value, accrued interest since the last leg cashflow date, premium, and DV01 for each leg appears.

— For information about a field, position your cursor over it or see Definitions. — For information about scaling reset rates, see Scaling Reset Rates.

— For information about editing leg characteristics such as date generation, amortization, and payoff information, see

Single Leg Details.

• FX/Curve Data: Allows you to specify the delivery currency, FX fixing days, and FX rate used to price the swap. You

can also update the curves that SWPM uses to discount cashflows and project forward pricing when calculating the

Market Value of the swap. Depending on whether your swap is fixed-fixed or fixed-float, different settings appear. SWPM calculates the market value using the selected curve at the market close of the day indicated in the Curve Date field. The

Valuation date is the date at which future cashflows are discounted.

Note: By default, SWPM prices swaps as of today, i.e., the default curve date is the current date. To price swaps as of a historical date, you must backdate both the Curve Date and Valuation fields. For example, to mark to market at quarter's end, you can enter the historical quarter-end date in both the Curve Date and Valuation fields. For more information, see

Backdating the Valuation.

— For information about a field, position your cursor over it or see Definitions.

— For information about how to update the curves that appear by default, see Setting a Source Curve.

— For information about how to visualize, customize, and apply shifts to the selected curve, see Customizing Curves. • Valuation: Allows you to select the variable you want to solve for and evaluate the swap. You can calculate the market

value of the deal (the sum of the present values of the receive leg minus the sum of the present values of the pay leg), or you can customize the valuation by choosing a variable from the Calculate drop-down menu. You can solve for the following variables:Premium455, Notional456, Leg1: Coupon457, Leg2: Coupon458 Leg2: Spread459, Leg2: Leverage460, Par Shift...461, and Z-Spread...462. For information about a field, position your cursor over it or see Definitions.

455 _{1.) In the Calculate drop-down menu, calculates the market value based on your inputs. The Market Value appears in the}

Valuation section. 2.) The premium, calculated as (Market Value / Notional) x 100.00. 3.) In the Solver drop-down menu,

calculates the net present value (NPV) based on your inputs. The NPV appears in the Results section.

456 _{1.) In the Calculate drop-down menu, calculates a notional amount based on your DV01 input. The Notional appears in}

the Leg 1/Leg 2 sections. 2.) Applies to an individual swap leg. The notional value of the swap leg.

457 _{Calculates the fixed coupon based on your Premium input. The Coupon appears in the Leg 1 section.} 458 _{Calculates the fixed coupon/par coupon rate. The Coupon appears in the Leg 2 section.}

459 _Calculates the floating leg spread based on your Premium input. The Spread appears in the Leg 2 section. 460 _{Calculates the floating leg leverage based on your Premium input. The Leverage appears in the Leg 2 section.}

461 _{Displays the Par Shift Quick Calculator, a scenario analysis tool that allows you to analyze the relationship between the}

discount curve and the premium. The Par Shift Quick Calculator presumes that cashflows are unchanged and shifts only

the discount curve. Par shift is the shift on the par curve (not stripped).

462 _{Displays the Z-Spread Quick Calculator, a scenario analysis tool that allows you to analyze the relationship between the}

discount curve and the premium. The Z-Spread Quick Calculator presumes that cashflows are unchanged and shifts

only the discount curve. The Z-Spread is the spread of the stripped, zero-coupon curve that makes the multi-leg deal

You can further analyze non-deliverable swaps by selecting another tab from the control area. Additionally, you can save your deal by selecting Actions > Save from the toolbar. Once you save the deal, you can access it from other Bloomberg functions or through Bloomberg's API by entering the deal number followed by the <CORP> key. For example, this allows you to download the cashflow schedule for an individual leg to Microsoft® Excel with Bloomberg's API.

• For information about the other tabs that appear on the template, see SWPM Tabs. • For more information about saving deals, see Saving Deals.

• For examples of using the template to price a plain vanilla swap, see Example: Solving for Spread and Example: Solving for

Price.

• For information about Bloomberg's API, see DAPI <Help>.