Products for hedging currency risk
Currency forward
This refers to a transaction wherein the seller sells to the buyer a specified quantity of one currency against payment of an agreed quantity in another currency and both obligations are settled at an established future date (no sooner than after 3 banking days). The future exchange rate and settlement date are binding for both the seller and the buyer.
Currency swap
This refers to a transaction that combines a spot transaction and a currency forward. The seller sells to the buyer a specified quantity of one currency against payment of an agreed quantity in another currency with settlement of both obligations within 2 banking days and at the same time there is a repurchase of the same volume of that currency with settlement at a specified future date (no sooner than after 3 banking days). The future exchange rate and settlement date are binding for the seller and the buyer. The two transactions are concluded simultaneously.
Currency options
This refers to transactions wherein the seller provides to the buyer the right, but not the obligation, to buy (call option) or to sell (put option) a specified quantity of one currency against payment of an agreed quantity in another currency with settlement at an established future date. The buyer of the option pays the option premium to obtain this right.
Exotic currency options
This group includes in particular the following:
Currency barrier options
A transaction wherein the seller provides to the buyer the right, but not the obligation, to buy (call option) or to sell (put option) a specified quantity of one currency against payment of an agreed quantity in another currency with settlement at an established future date. However, the option is exercised only if the option is activated (knock-in) or not deactivated (knock-out). The buyer of the option pays the option premium to obtain this right.
Binary currency option
A transaction wherein the seller provides to the buyer the right in advance to receive a payout at an agreed time if an agreed exchange rate will not be reached. The buyer of the option pays the option premium to obtain this right.
Combined products
This group includes, for example, the following:
Target redemption forward
This refers to a transaction that combines a currency barrier (knock-out) call option and a currency barrier (knock-out) put option with several partial settlement dates. This relates to a zero cost option strategy in which one party purchases a right to buy or to sell a given currency and at the same time sells a right to buy or to sell that same currency. If on any partial settlement date the relevant currency option is exercised, then the client cumulates the profit to that date. If the client’s accumulated profit will at some point reach an amount agreed in advance, then both currency barrier options are deactivated.
Forward extra with European barrier option
This refers to a transaction that combines a plain vanilla currency option and a currency barrier option (European style knock-in). This relates to a zero cost option strategy in which one party purchases a right to buy or to sell a given currency and at the same time sells a right to buy or to sell that same currency. Activation of the barrier option only can occur at the expiry date of the currency barrier option.
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