It stands for power reverse dual currency swap, which is an exotic cross-currency swap whose maturity is typically long-dated, up to 30 years, while its coupons are options on the forex rate (typically a dollar-yen rate). In this sense, a PRDC swap is exposed to moves in the exchange rate (domestic against foreign), and to moves in the interest rates in both currencies. PRDC swaps are often Bermudan-style callable, or may come with knock-out features. For example, this swap may contain a FX target redemption (FX-TARN) provision, providing a cap on the FX-linked PRDC coupon amounts, so that once the accumulated coupon amount reaches the cap level, the PRDC swap automatically terminates.
December 21, 2024
