Template:M summ 2002 ISDA 8

Essentially, an operational provision dealing with the practical problem that, when you are in the international markets, when you may be trading in different currencies, the counterparties may report their profit and loss in different currencies, and the individual legs of individual Transactions themselves may be denominated in different currencies. So it isn’t always clear what the basic currency in which the parties should resolve things, if they go wrong, ought to be. Enter Section 8:

If you’re stupid enough to pay an amount you owe in the wrong currency, consider yourself at the mercy of your counterparty’s good graces when she goes about converting it — or electing not to convert it — see 8(d). Moral of story: discharge your obligations in the correct currency.

The converse applies for judgment debts: If you are imprudent enough to lose litigation over your ISDA Transactions, and the successful party is awarded damages in a different currency (the JC is no litigator but is given to understand local courts can do this sort of thing, whether the petitioner likes it or not), then the defaulting/misbehaving party is responsible for any shortfall due to movements in exchange rates. Moral of the story: don’t get into litigation over your ISDA Master Agreement. If you do, make sure you don’t lose.

You don’t have to actually convert a currency at a loss to prove a loss. It is okay to keep your money in the tendered currency, and therefore not crystalise the position. This is one of those things where you are damned if you do or don’t, so ISDA’s crack drafting squad™ probably felt like it had to say something.