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    Risk Management Services Combined with Gold Leasing
    Risk Management Services on Commodities
    Risk Management Services Combined with Commodity Finance
    Risk Management Services Combined with Commodity Finance
    Risk Management Services on Commodities
    Risk Management Services Combined with Gold Leasing
    Risk Management Services Combined with Gold Leasing
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  Home Page > Corporate Banking >Financial market >Products & Services >Risk management products - commodity >Risk Management Services Combined with Gold Leasing
Risk Management Services Combined with Gold Leasing
 

I. Introduction
Risk management services on commodities are global markets services where customers use financial tools (forward, swap, option) to trade commodities (base metals, precious metals, energy, agricultural produce, soft commodities and others) using prices quoted from ICBC.
Gold leasing service is a service for qualified corporate clients ("lessee") to lease gold from ICBC. ICBC collects leasing fee as agreed in the contract. When the contract expires the lessee returns gold of the same amount to ICBC. Customer leases gold from ICBC to secure cheaper debt as the leasing fee is lower than the interest rate of liquidity loan of the same term.
Risk management services combined with gold leasing is a service for customers to enter a gold forward contract to hedge against the risk of rising gold forward rate when leasing gold from ICBC.

II. Target Clients
Corporate clients with good knowledge about international commodity market and need to lease gold and manage the commodity price risk, including commodity producers,processors, traders and end-user companies.

III. Features and Advantages
I. Use gold forward contract to lock in the cost of buying gold in the future and hedge against the risk of rising gold forward rate.
II. Settle by cash spread, no delivery of physical commodity. At maturity, both parties settle the deal using fixed price as agreed and commodity price on the pricing date.
III. Standard OTC product, no upfront fee for both parties, deal structure can be flexibly customized to meet client's need.

IV. Cases
A jewelry company D signed a gold leasing contract with ICBC on June 30, 2011 and leased 1000 kg (32151 ounces) of gold. Gold price on June 30, 2011 was USD 1520 per ounce. The company returned 1000 kg of spot gold to ICBC on September 30, 2011. The customer desired to avert the rising gold price during leasing period.
Customer and ICBC signed a gold forward contract to buy gold from ICBC at a forward rate of USD 1530 per ounce. The forward rate expired on September 30. Assuming gold price surged to USD 1630 per ounce, the customer returned gold and bought at USD 1630 per ounce from spot market. In forward contract, ICBC paid USD 1630-1530=100 per ounce to customer. Cost of the customer to return gold: USD 1630-100=1530 per ounce. In this way, the customer successfully hedges against the risk of rising gold price.

V. Application Conditions
Besides the conditions for gold leasing service, customers must meet the following:
(I) Primary deposit A/C or general deposit A/C opened in ICBC.
(II) No bad credit record in the bank, no other material negative track-record.
(III) Credit rating of grade A (inclusive) or above.
(IV) Line of credit granted by ICBC for derivative trading.
Customers who provide full-amount margin or other low-risk guarantee are not restricted to (III) (IV) above.

IV. Steps
1. Sign master agreement: Customer who uses ICBC risk management service on commodities must sign with ICBC Agreement on Risk Management Services.
2. Assess customer: ICBC will make an overall assessment on the customer (business nature, experience in trading financial derivatives, internal management and control), customer fills in Customer Evaluation Form.
3. Submit application, risk confirmation: Depending on the requirement, customer may enter one contract at a time with ICBC by signing ICBC Customer Confirmation on Financial Derivatives for Corporate Accounts.
4. Supply guarantee: Customer may opt to pay margin or provide collateral, or use the credit line specially granted for trading derivatives. During the validity period of the contract, ICBC will provide dynamic management on the margin based on the market value of the derivative trade.
5. Closing: Once the deal is closed, ICBC issues Confirmation Letter to customer.
6. Settle: On the maturity date, ICBC clears amount and posts into accounts for customer.

VII. Links
Physical Gold Leasing Service

VIII. Risk Warning
Commodity prices in international market may fluctuate depending on the international and domestic political and economic conditions and other sudden events. All risks and losses after settlement shall be borne by the customers. Under no circumstance ICBC shall be liable.

Note: Information herein is for reference only. Refer to the announcements and regulations of local branches for further details. Industrial and Commercial Bank of China Limited reserves the final right of interpretation.


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