Illustrative Transactions
Sample Swap Transaction
MFX's preferred transaction scenario is a non-deliverable swap with all payments made on a net basis in dollars/euros offshore with the client on one side and TCX on the other. MFX will also develop the capability to do deliverable swaps where it will assume transfer risk and conversion costs. There will be some pricing adjustment for deliverable swaps which will be directly related to the additional costs MFX incurs and the level of transfer risk in the transaction. The following example assumes the MIV lender also structures a local currency loan payable in dollar equivalents but this is not required if the MIV prefers to assume the conversion risk.Notional terms for a back-to-back non-deliverable swap (fixed-for-floating)
Loan: Currency: Ghanaian Cedi Amount: $2 million Term: 3 yr, semi-annual interest payments Rate: 25% fixed rate Loan Payment: Dollars to be converted at spot rate Repayments: Dollar equivalent of local currency amount, converted at spot rate 2 days prior to payment date, credited to lender's $ account.
MIV-MFX swap: Notional Swap Amount: $2 million MIV pays Cedi leg/MFX pays dollar leg Interest rate for Cedi leg: 25.0% fixed Interest rate for $ leg: USD 6-month LIBOR plus 2.5 points Cedi principal amount: Cedi equivalent of $2 million on day swap contract begins. Cedi semi-annual interest amount: 25.0% times the Cedi principal amount divided by 2, converted to dollars 2 days prior to payment. Dollar semi-annual interest amount: $2 million times the current 6-month LIBOR plus 2.5 points divided by 2. Terms: On each interest repayment date, the MIV pays (or, if negative, receives) the difference between the Cedi interest amount and the dollar interest amount. On the repayment date the MIV pays (or, if negative, receives) the difference between the original CEDI principal amount and the $2 million, converted to dollars 2 days prior to payment.
MFX-TCX Swap: Notional Swap Amount: $2 million MFX pays Cedi leg/TCX pays dollar leg Interest rate for Cedi leg: 25.0% Interest rate for $ leg: USD 6-month LIBOR plus 3.0 points. Cedi principal amount: Cedi equivalent of $2 million on day swap contract begins. Cedi semi-annual interest amount: 25.0% times the Cedi principal amount divided by 2, converted to dollars 2 days prior to payment. Dollar semi-annual interest amount: $2 million times the current 6-month LIBOR plus 3.0 points divided by 2. Terms: On each interest repayment date, MFX pays (or, if negative, receives) the difference between the Cedi interest amount and the dollar interest amount. On the repayment date MFX pays (or, if negative, receives) the difference between the original CEDI principal amount and $2 million, converted to dollars 2 days prior to payment. Under this swap arrangement the MIV receives an assured USD LIBOR plus 2.5 points return.. MFX makes a 0.50 points spread above TCX's swap price to cover credit risk regardless of what happens with currency or interest rates. TCX makes or loses money depending on whether or not the cumulative interest rate spread between the Cedi rate and LIBOR is greater than any loss from currency depreciation. The basic swap price is set by TCX.
