Korea Derivatives Investment Advisor

Practice session

Company A enters into a 3-year plain vanilla Interest Rate Swap (금리스왑 / IRS) with a financial institution. The notional principal is KRW 10,000,000,000 (10 billion KRW). Company A pays a fixed rate of 4.0% p.a. and receives the floating 3-month CD rate (양도성예금증서 금리). Payments are settled semi-annually (every 6 months, 0.5 years). At the start of the first semi-annual calculation period, the reference 3-month CD rate was set at 3.2% p.a. What is the net cash settlement amount and direction for Company A at the end of this first semi-annual period?

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