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Derivatives

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  • July 27, 2021
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Flip Swap

A single currency swap or a cross currency swap in which the client receives a fixed or floating interest rate and pays either a best case below par or a worst case above par. The worst and best case depend on a foreign exchange rate trading below or above a pre-set strike level and will be determined at the end of each period. This structure functions well if the client bets against the outright forward curve (that is, if the forward curve is downward sloping), in which case, the client would pay the best case if the exchange rate is trading above the strike and worst case otherwise.


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