I have been stomped on this question say I am a US investor and I want to just receive JPY coupon using my US coupon. How do I do this? Is a just a straight exchange of paying fixed US coupon and receiving fixed JPY coupon? Or is it more complicated than that

  • Is this a hypothetical situation? If you were an institutional bank you could enter into a currency swap but I'm wondering if you want something more practical (swaps are usually done at very large scale).
    – D Stanley
    Commented Aug 16, 2022 at 1:04
  • its a hypothetical situation, Just want a simple version, what is being exchange and is it at a fixed rate or floating rate? Commented Aug 16, 2022 at 1:08

1 Answer 1


A common way to do this is with a currency swap. With a currency swap, you agree to pay either a fixed or floating amount each period in exchange for a fixed or floating amount amount in a different currency. They are only traded over-the-counter, typically by investment banks on a very large to hedge specific risks. With floating-rate swaps, the floating rate is typically determined by some industry standard interest rate quote.

As an example, Say you entered into a float-float swap with a notional of $1,000,000 where you pay a coupon in the amount of the Secured Overnight Funds Rate (SOFR) and receive a coupon in JPY calculated using the Mutan interest rate (the standard overnight rate for Japan). Each quarter (or month, depending on the terms of the contract), you pay the other side USD and they pay you JPY.

If you have a fixed-rate bond, and thus want to pay a fixed amount of USD, you could to a fixed-to-float swap, but the mechanics would be similar; you'd pay a fixed amount of USD in exchange for a floating rate in JPY.

There are also fixed-fixed swaps, where you trade a fixed amount of one currency for a fixed amount in another, but they are less common. Swaps are typically used to protect against interest rate risk is specific currencies (hence the floating leg), but a fixed-fixed swap is possible. The "exchange rate" would be fixed at the onset of the swap and be based on the market's expectation of future exchange rates.

  • As a fixed US bond owner, why can't I just swap my fixed US coupon and receive fixed JPY coupon and not floating rate? Commented Aug 16, 2022 at 12:55
  • @the_brass_bottle You can, but they are less common. I've added that.
    – D Stanley
    Commented Aug 16, 2022 at 14:09

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .