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  Home Page > Corporate Banking >Financial market >Corporate Risk Management >Forward Foreign Exchange Settlement and Sale
Forward Foreign Exchange Settlement and Sale
 
I. Description
Forward foreign exchange settlement and sale business refers to that a customer signs a forward exchange settlement or exchange surrendering agreement with ICBC, agreeing on the foreign currency type, amount, exchange rate and term for settlement or surrendering; and, upon the foreign exchange receipts or disbursements on the delivery date, the exchange settlement or exchange surrendering business will be handled on the basis of the foreign currency type, amount and exchange rate as agreed in the forward foreign exchange settlement and sale contract.

II. Target Customers
The product is applicable for corporate customers such as state organs, enterprises and institutions, social organizations, troops and foreign- funed enterprises established in the territory of the People’s Republic of China (excluding Hong Kong, Macao and Taiwan) with needs and for the purpose of hedging.

III. Features and Advantages
i. Main features of forward foreign exchange settlement and sale business
1. Forward foreign exchange settlement and sale business is the most fundamental derivative tool of exchange rate, and the trading structure is simple and clear, and easily understandable.
2. It is a mature product, and the customers can ward off exchange rate risks on the basis of the future situation of foreign exchange receipts and disbursements and the expectations about the exchange rate market.
3. It can be conveniently combined with other products, and the customers can thereby enhance the returns or reduce the financial cost.
ii. ICBC’s strength in forward foreign exchange settlement and sale business
1. Diversified product lines
ICBC has the leading product R&D and risk management capabilities in the banking industry, and is able to provide comprehensive hedging tools against forward exchange rate risks to the customers, including diversified forward foreign exchange settlement and sale products and portfolios such as fixed-term forward exchange, optional forward exchange, parity forward exchange, super forward exchange and foreign exchange payment and financing business, and thus meet customers' demands fully.
2. Customized product
ICBC’s forward foreign exchange settlement and sale business supports eleven types of foreign currencies, i.e., US Dollar, Japanese Yen, Euro, British Pound, Hong Kong Dollar, Australian Dollar, Canadian Dollar, Swiss Franc, Danish Krone, Singapore Dollar and Ruble, and supports forward foreign exchange settlement and sale business with different terms; furthermore, the customers can apply for special means of delivery such as advance delivery, rolling-over, partial delivery and delivery in batches in order to meet the customers’ operating cash flow demand.
3. High-quality product management
ICBC’s forward foreign exchange settlement and sale product can regularly provide transaction evaluation reports, and provide subsequent dynamic management services according to the market quotations and the customers’ demands.
4. Flexible credit system
ICBC’s credit mechanism for forward foreign exchange settlement and sale is flexible, and the customers can choose freely to use special credit derivatives or pay a certain margin.

IV. Case Study
In January 2011, a corporate customer engaged in export business expected to receive a payment for goods amounting to USD20 million in 8 months; considering that there was an expectation of RMB appreciation, and in order to hedge against the financial risk brought by the fluctuations of exchange rate market, the customer made a forward exchange settlement transaction maturing in 8 months with ICBC amounting to USD20 million, with the agreed forward exchange rate of USD to RMB being 6.52. In September 2011, the transaction became due, and the customer sold the USD at the agreed forward exchange rate of 6.52 and bought the equivalent RMB.
Assuming that the spot exchange rate of USD to RMB on the maturity date is 6.50, the customer will enjoy the benefits brought by the previously locked exchange rate, and reduce the financial cost by RMB0.40 million (RMB 20 million×(6.52-6.50)=0.40 million); assuming that the spot exchange rate is 6.54, the customer will bear the risk brought by the previously locked exchange rate, and pay the increased financial cost of RMB0.40 million (RMB 20 million×(6.54-6.52)= 0.40 million); however, since the customer has hedged against the risk brought by changes in exchange rate by the forward foreign exchange settlement and sale business, and stabilized the future cash flow, the effectiveness of financial cost management will not be affected.

V. Qualification
The customers with foreign exchange receipts and disbursements under the current account, those with the needs to repay the funds such as the Bank’s self-operated foreign exchange loans, the overseas loans registered in SAFE, foreign exchange receipts and disbursements for ODI registered in SAFE, and foreign exchange capital income of foreign-invested enterprises registered in SAFE, and the customers with foreign exchange receipts and disbursements under the financial account, are qualified to apply for the business.

VI. Application Process
1. Business preparation
(1) Customer evaluation: before a customer applies for the forward foreign exchange settlement and sale business, ICBC will carry out risk evaluation to the customer, and provide a written risk warning. ICBC will not accept the authorization until the customer has confirmed the written risk warning item by item in writing form.
(2) Signing of the master agreement: after qualifying the evaluation, the customer shall sign a Master Agreement of ICBC on Foreign Exchange Settlement and Sale Business with ICBC.
2. Business processing
(1) Trading authorization: the customer is not allowed to conduct any transaction until it has fully paid the margin or has taken other guarantee measures. During the validity period of trading authorization, the customer can apply for amendment or cancellation of the trading authorization.
(2) Closing of transaction: after closing of transaction, ICBC will issue a transaction certificate to the customer.
3. Business delivery
(1) Delivery on the delivery day: on the delivery date, the customer shall handle the delivery business with valid vouchers and/or commercial documents. For the forward foreign exchange settlement and sale business with a fixed delivery date, the 3 working days following the delivery date is set as the grace period, and the delivery handled during the grace period shall be construed as due performance of the contract.
(2) Processing of special delivery: the customer can apply for special delivery such as advance delivery, roll-over before maturity, partial delivery upon maturity and delivery in batches. If any loss incurred by special delivery, it shall be compensated by the customer; if any profit gained from special delivery, it shall be temporarily saved into the margin account of the customer, and paid to the customer after due performance of the agreement.
4. Transaction extension
A customer can apply for transaction extension on the delivery date or before maturity of the grace period, and specify the extension times and term. After ICBC has accepted the customer’s extension application, the customer shall close the existing transaction as per the current buying and selling rates of ICBC for foreign exchange settlement and sale business, and then make the extension transaction with ICBC. As for the difference of exchange rate between the agreed price and the close rate, if any loss, it shall be compensated fully by the customer before the extension can be accepted; if any profit, it shall be temporarily saved into the margin account of the customer, and returned to the customer after due performance of the customer upon maturity of extension transaction.
5. Handling of default. Should the customer fail to fulfill the payment obligation as agreed, it shall be construed as a default event. In the case of a default event, the Bank is entitled to take necessary measures to deal with the customer’s existing transactions; if any loss of the Bank is incurred by the customer’s default, the loss shall be borne by the customer, and deducted directly from the customer’s margin account or other accounts; if any profit is gained, it shall be dealt with according to relevant business principles.

VII. Service Channels and Hours
The customers meeting the access qualifications can apply for forward foreign exchange settlement and sale business to a tier-1 or tier-2 branch with the operation right of forward foreign exchange settlement and sale within the business hours.

VIII. Operation Guide

IX. FAQs
i. The customers can apply to ICBC for forward foreign exchange settlement and sale business for the funds of foreign exchange receipts and disbursements under the following accounts:
1. Under the current accounts;
2. Under the capital and financial accounts.
(1) For repaying the Bank’s self-operated foreign exchange loans;
(2) For repaying the overseas loans registered in SAFE;
(3) Foreign exchange receipts and disbursements of ODI registered in SAFE;
(4) Foreign exchange capital income of foreign-invested enterprises registered in SAFE;
(5) Foreign exchange receipts of domestic institutions publicly listed abroad registered in SAFE;
(6) Other foreign exchange receipts and disbursements as approved by SAFE.
ii. The customer shall submit relevant qualification certificates and compliant and valid documentary evidence, cooperate with the Bank in due diligence, and sign related agreements and confirmation letters.
iii. On the premise of signing related agreements and confirmation letters, the customers can submit an official letter of authorization to corresponding branches, which will then transfer it to the Head Office for confirmation; upon receipt of the confirmation from the Head Office, the corresponding branches will issue transaction certificates to the customers, which will serve as the official transaction documents.
iv. Upon maturity of the product, the customers shall fulfill the delivery obligation as agreed; in the case that a customer desires to adjust the delivery time or mode due to the factors such as trade complexity, he can submit an application to the Bank for special delivery such as advance delivery, roll-over before maturity, partial delivery upon maturity and delivery in batches.

X. Risk Prompt
The risk in the forward foreign exchange settlement and sale business is mainly reflected as market risk, and the forward transaction proposed by the customers may be subject to floating P/L owing to the fluctuations of exchange rate. In the case of any loss in the transaction and the transaction terminated by the customer, the loss will be borne by the customer. However, if the forward foreign exchange settlement and sale business is completely matched with the basic assets of hedging, the floating P/L will not affect the effectiveness of management.

XI. Notes
Forward foreign exchange settlement and sale business has high requirements on the transaction timeliness, so the loss caused by market price fluctuation shall be avoided in the operation.

XII. Definitions
1. Forward foreign exchange settlement and sale business with fixed term refers to that the agreement of forward foreign exchange settlement and sale signed between the customer and the Bank clearly specifies a predetermined working day in future when the delivery of funds will be handled as per the agreed exchange rate.
2. Optional forward transaction refers to that the agreement of forward foreign exchange settlement and sale signed between the customer and the Bank clearly specifies that the customer is entitled to demand the Bank for delivery of funds as per the agreed exchange rate on a random working day (to be notified to the Bank one business day in advance) during a certain period in future.
3. Parity forward foreign exchange settlement and sale business refers to that the agreement of forward foreign exchange settlement and sale signed between the customer and the Bank clearly specifies that the same exchange rate will be applied in the cash flow during a certain period in future for the Bank to handle the delivery of funds.
4. Super forward foreign exchange settlement and sale business refers to the forward foreign exchange settlement and sale business with the value date at least one year later.
5. Remittance Financing Express is a portfolio of forward foreign exchange settlement and sale, RMB deposit and foreign currency financing product, in which the customer can handle the foreign currency financing business for external payments, and simultaneously handle a RMB deposit and forward foreign exchange settlement and sale business with the same term as the foreign currency financing business; upon maturity, the principal and interest of the RMB deposits will be used in the delivery of the forward foreign exchange settlement and sale transaction to repay the principal and interest of the foreign currency financing business.

Note: The information provided on this page is for reference only. Concrete business shall be subject to the announcement and provisions of the local outlet.


(2016-05-05)
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