Hara-Kiri Swap
Categories: Derivatives
Hara kiri is a type of ritualistic suicide that Samurai would do if they got their swords dirty, or whatever. It involved the warriors cutting open their own bellies.
The hara-kiri swap involves a financial contract so bad, you theoretically want to stab yourself in the stomach. These situations came up in the 1980s, when Japanese firms would set up swap agreements that had no way of being profitable for them.
The Japanese banks that wrote the swaps saw them as a way to bring in foreign business. Kind of a loss-leader situation. From the perspective of U.S. traders, however, it just looked like slow, ritualistic suicide. Hence the name.