Cross-Currency Swap Valuation Calculator
Estimate the net value of a cross-currency swap based on notional amount, domestic and foreign interest rates, tenor, and the current spot rate. Useful for corporate treasurers comparing funding costs across currencies.
About this calculator
A cross-currency swap involves exchanging principal and interest payments in two different currencies over an agreed tenor. The simplified valuation formula used here is: Value = Notional × [(Domestic Rate − Foreign Rate) / 100] × Tenor + (Notional × Spot Rate × 0.001 × Tenor). The first term captures the net interest differential between the two legs of the swap over its life. The second term approximates a basis spread adjustment reflecting the cost of exchanging currencies in the market. A positive result indicates the domestic leg is more valuable; a negative result favours the foreign leg. Full mark-to-market valuation in practice involves discounting each cash flow using the relevant zero curves for each currency.
How to use
Assume a 5-year swap on a $10,000,000 notional. Domestic rate = 4%, foreign rate = 2%, spot rate = 1.25, tenor = 5. Interest differential term: $10,000,000 × (4 − 2)/100 × 5 = $10,000,000 × 0.02 × 5 = $1,000,000. Basis adjustment term: $10,000,000 × 1.25 × 0.001 × 5 = $62,500. Total estimated swap value = $1,000,000 + $62,500 = $1,062,500. This positive value suggests the party receiving the domestic rate benefits from the arrangement under current market conditions.
Frequently asked questions
What is a cross-currency swap and why do companies use it?
A cross-currency swap is a contract in which two parties exchange principal and periodic interest payments denominated in different currencies for a set period. Companies use them to access cheaper funding in foreign markets while converting the exposure back to their home currency, effectively locking in exchange rates and interest rates simultaneously. Multinationals with revenues in one currency and debt in another use these swaps to eliminate mismatch risk. They are also widely used by banks to manage their own currency funding gaps.
How does the interest rate differential affect cross-currency swap value?
The interest rate differential is the primary driver of the swap's economic value. If domestic rates are higher than foreign rates, the party paying domestic fixed and receiving foreign fixed is at a disadvantage from a pure rate perspective, but they benefit from the currency exchange at the agreed rate. The differential multiplied by the notional and tenor gives a rough measure of the total net interest benefit or cost. Changes in either rate after the swap is executed will mark the swap to a gain or loss.
What is the basis spread in a cross-currency swap?
The basis spread (or cross-currency basis) is an additional premium above or below LIBOR/SOFR that one party pays to obtain a desired currency in the swap market. It arises from supply and demand imbalances in the FX funding market—if one currency is in high demand, lenders of that currency charge a premium. In this calculator, the term Notional × Spot Rate × 0.001 × Tenor approximates this basis cost. In live markets, basis spreads are quoted explicitly and can be positive or negative depending on prevailing liquidity conditions.