A combination of a cross-currency swap with a swaption (swap option). This swap confers on the holder (i.e., the buyer) the right without the obligation (on one or more fixing dates during the life of the swap) to switch (flip) the interest rate payment of the swap he receives from the other party. If the holder is a fixed rate receiver, he has the right, on any fixing date, to flip into a floating rate receiver from the next payment date until expiration date. The floating rate is preset in the original agreement. If the buyer is receiving a floating rate, he has the right, on any fixing date, to flip into receiving a fixed rate from the next payment date until expiration date. Likewise, the fixed rate is pre-defined in the original agreement.

This swap is a zero-cost product, as no premium is paid to enter into. However, the buyer (the long), being a fixed-rate payer, could incur a higher fixed rate than the market rate. In the opposite case (the buyer is a fixed-rate receiver), chances are good that this rate will be below market.

An example of a flippable cross currency swap may be one where a Japanese company is paying a floating rate on a U.S. dollar-denominated loan. This company needs to convert its liability into domestic currency (yen), and at the same time reduce the fixed rate it is paying. Therefore, it enters into a flippable cross-currency swap whereby it pays yen fixed rate and receives dollar floating rate. Under this swap it can reduce the exchange rate it is paying by transacting at a lowered fixed rate. However, that comes at a cost: if the preset floating rate exceeds the fixed rate the company is paying, the other counterparty will certainly exercise its right to receive the floating rate from the company instead of the fixed rate.