Pay USD fixed, receive EUR fixed currency swap

It looks like we borrow EURO and deposit USD

Does it mean we need to pay EURO interest and receive USD interest?

Or should be the other way wrong??

Pay USD, receive EUR

Think of a currency swap – and any other swap, for that matter – as an exchange of two bonds.

Here, we’re paying USD fixed, as if we had issued a fixed-rate, USD-denominated bond (so we’re paying fixed-rate USD coupons), and receiving EUR fixed, as if we had purchased a fixed-rate, EUR-denominated bond (so we’re receiving fixed-rate EUR coupons).

If we had issued a fixed-rate, USD-denominated bond, we would receive the USD par value at the beginning, and would pay the USD par at the end. If we had purchased a fixed-rate, EUR-denominated bond, we would pay the EUR par at the beginning and would receive the EUR par at the end.

Great thanks. It’s very helpful.

But one question, why they use the wording “Pay” instead of “Issue”? I think “issue” will create less confusion?

Remember that this is CFA Institute: creating confusion is in their mission statement.

(Seriously, though: you’re entering into a swap, not exchanging bonds; the language is different. You need to understand the equivalence, the language notwithstanding.)

Hahaha, got it. Thanks Magician!

My pleasure.