An equity swap has the following specifications:
Notional principal = $100m
One counterparty pays MSCI (Morgan Stanley Capital International Index) return in quarterly basis
Another counterparty pays SP500 return in quarterly basis.
Net cashflow calculations are in quarterly basis
Counterpart X entered a pay MSCI equity swap on Jan 1, 2001 with Counterparty Y. On March 31, 2001, MSCI had a 5% return while SP500 had a 3% return. What should be the net cashflow? Be specific regarding who pays whom.