# Quanto effect in cross currency mtm swaps

Apparently the standard way to value these swaps involves ignoring the quanto effect, - ie the correlation between fx and rates. I wonder why this is - is this correl always so close to zero?

Eg of such a swap: swap 3m usd libor for 3m jpy libor, where jpy notional= 100mio jpy and usd notional for coupon i = 100mio x fxspot[jpyusd] at start of coupon i

(So usd leg coupon i notional is fixed in jpy - this is the quanto feature: the jpy p&l has zero fx exposure to usdjpy fx rate for such coupons) Note: these are aka notional-reset ccs

• Pls try to explain why you think this is exposed to the correlation between fx and rates. There is no fixed rate leg in the basis swap so I don't see where that is coming from.
– dm63
Commented Dec 2, 2017 at 11:23
• value of interest in coupon i in usd for usd leg = E(Fi * 100mio jpy x jpy/usd[i]) where Fi = 3m usd libor for cpn i. so we can see here that this expectation must take into account the correlation between 3m usd libor and the fx rate Commented Dec 3, 2017 at 18:18
• dm63 can you answer? Commented Dec 7, 2017 at 12:29