# Implied interest rate from FX swap

This is not homework. I am trying to calculate the implied interest rate of one currency (C2) using an FX swap and the interest rate of another currency (C1 - base). I have the following:

Spot: 7.7587 (C2 per unit C1)
Sell Notional (spot) C2: 100,000,000.00

Start date: 6-May-13
End date: 7-May-14

Sell Notional (forward) C1: 12,905,390,58
Forward FX rate: 7.7487

I have a borrowing in C1 for 0.9650% for the year.
Using interest rate parity: $$F_0 = S_0 \frac{1+r_{C2}}{1+r_{C1}}$$
I solve for $r_{C2} = 0.8349\%$.
However, I am told that the right answer is $0.8486\%$.
Which should be the implied interest rate in currency C1. Am I crazy or missing something?

Do I need to consider FX basis?

EDIT
If I use ACT/360 for C1 and ACT/365 for C2 with $ACT=365$ I get actually pretty close $(0.8483\%)$. Is that it? Is the difference caused by daycount?

C1 is USD
C2 is HKD
(I believe these are the correct day-count convention based on a paper by UBS). Not sure where to find the "official" declaration.

• well, its impossible to say if you dont tell us which day count conventions must be applied. The question, wherever it is coming from should make a mention of that.
– Matt
Jun 28, 2013 at 4:44
• Apologies. I clarified the currencies in the edit. Jun 28, 2013 at 5:41

$$\frac{7.7487}{7.7587} = \frac{1+r_2(\frac{366}{365})}{1+0.00965×\frac{366}{360}}$$
Solving for $r_2 = 0.8486$.