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    Dual-currency Forward Exchange Sales and Settlement
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  Home Page > Corporate Banking >Financial market >Products & Services >Risk management products - exchange rate >Dual-currency Forward Exchange Sales and Settlement
Dual-currency Forward Exchange Sales and Settlement
 
I. Business Description
Dual-currency forward exchange sales and settlement means that ICBC and the customers will agree on the excising exchange rate of US dollar and another foreign currency (the coverage can be expanded to the combination of any two foreign currencies according to market needs) in the beginning of the period and quote the respective forward exchange settlement (or exchange sales) prices of US dollar and the other foreign currency to RMB on this basis and conduct exchange settlement (or exchange sales) of only one foreign currency upon maturity. The foreign currency for delivery depends on the comparison of the market exchange rate of US dollar against the foreign currency on the maturity date and the agreed exercising exchange rate. The price of dual-currency forward exchange sales and settlement is superior to the price of regular forward exchange sales and settlement except that the customers shall bear the risk that the currency for delivery on the maturity date is uncertain.
As for forward exchange settlement, if the market exchange rate of the other foreign currency against US dollar is higher than the agreed exercising exchange rate on the maturity date, the customers shall conduct exchange settlement in the other foreign currency at the quoted price; if the market exchange rate of the other foreign currency against US dollar is lower than the agreed exercising exchange rate on the maturity date, the customers shall conduct exchange settlement in US dollar at the quoted price. As for forward exchange sales, if the market exchange rate of the other foreign currency against US dollar is higher than the agreed exercising exchange rate on the maturity date, the customers shall purchase foreign exchange in US dollar at the quoted price; if the market exchange rate of the other foreign currency against US dollar is lower than the agreed exercising exchange rate on the maturity date, the customers shall purchase foreign exchange in the other foreign currency at the quoted price. The product in essence is a creative combination of regular forward exchange sales and settlement and foreign exchange option.

II. Target Customers
The product is applicable to the corporate customers that have a real trade background and make payments in two foreign currencies. The customers are willing to conduct forward exchange sales and settlement at a more favorable rate than regular forward exchange sales and settlement and willing to bear the risk that the exchange rates of the two currencies can not be locked up at the same time.

III. Features and Advantages
1. Dual-currency price quotation. Unlike regular forward exchange sales and settlement which only agrees on the forward exchange sales and settlement price of one foreign currency to RMB, dual-currency forward exchange sales and settlement shall agree on the exercising exchange rates of the US dollar and another foreign currency and quote the respective forward exchange settlement (or exchange sales) prices of US dollar and the other foreign currency to RMB on this basis.
2. Favorable price. As the customers of dual-currency forward exchange sales and settlement are exposed to the uncertainty of the currency for delivery at the end of the period, the price quotation of exchange sales and settlement is improved so that the rate of dual-currency forward exchange sales and settlement will be more favorable than that of regular forward exchange sales and settlement of the same period no matter what currency is used for exchange sales and settlement in the end.
3. Flexible options. Dual-currency forward exchange sales and settlement can be customized by setting different exercising exchange rates of US dollar against the other foreign currency according to the market perspective and risk tolerance of the customers. ICBC will reasonably match exercising exchange rates and improve the rates of forward exchange sales and settlement to meet the customers’ individual needs.
4. Clearly structured and easy to understand. Clearly structured and easy to understand, dual-currency forward exchange sales and settlement is regular forward exchange sales and settlement added with the selection of currency.

IV. Case Illustration
Business background: Company A is an import and export company, it mainly exports to the US and the Euro Zone, and the company has both USD and EUR incomes. On January 22, 2014, Company will receive USD1.40 million as export proceeds six months later.
Business needs: The customer hopes to lock up the cost of forward USD exchange settlement. According to Company’s estimation, the financial cost of US dollar is approximately RMB6.10/USD1. However, the six-month forward exchange settlement price of US dollar is only RMB6.50/USD1 and it can not meet the customer’s needs. Besides, Company A has attached great attention to the changes of EUR and USD exchange rates, believing that the EUR and USD exchange rates will not exceed 1.40 six months later.
Solution: According to the customer’s needs and its market perspective, the customer may apply for six-month EUR-USD dual-currency forward exchange settlement with an exercise price of 1.40 so that if the spot price of Euro and US dollar is less than or equal to 1.40 six months later, the customer will settle exchange in US dollar at the exchange rate of RMB6.11/USD1 or the customer will settle exchange in Euro at the exchange rate of RMB8.5540/EUR1. As the customers believes that the EUR and USD exchange rates will not exceed 1.40 six months later, the product will be able to meet the customer’s needs from the customer’s perspective.

V. Conditions for Application
Dual-currency forward exchange sales and settlement is available for the foreign exchange payments under the customers’ current account, repayable proprietary foreign exchange loans, repayable overseas loans registered by the SAFE, foreign exchange payments for direct foreign investment registered by the SAFE, foreign exchange capital incomes of foreign investors registered by the SAFE and other foreign exchange payments under capital and financial accounts.
VI. Sign-up
The customer shall assist ICBC to complete the comprehensive assessment, fill in and submit the Customer Assessment Table and sign the General Agreement on the Exchange Sales and Settlement Business of ICBC with ICBC to specify the rights and obligations of both parties.
Before the transaction starts, the customer shall submit the application for dual-currency forward exchange sales and settlement transaction, confirm his or her knowledge of the Risk Warning enclosed therein and the requirements of CBRC in writing form that he or she is fully aware of the structure and the potential risks of the transaction and willing to bear the corresponding trading risks and potential losses. The customer shall also provide necessary guarantees as required by ICBC before the transaction is closed. Both parties shall perform the corresponding delivery or payment obligation in the duration of the product and on the maturity date after the transaction is closed as required by the agreement.

VII. Operation Guide


VIII. Service Channels and Hours
Eligible customers may apply to tier-one branches or tier-two branches authorized to provide dual-currency forward exchange sales and settlement service for dual-currency forward exchange sales and settlement service during business hours.

IX. Risk Warning
1. Policy risk: Forward exchange sales and settlement is a product designed according to the current laws and regulations as well as regulatory requirements, changes in the state’s macro policies, laws and regulations or regulatory requirements may affect the customer’s normal transactions and even lead to suspension of the service, thus causing losses to the customer.
2. Market risk: Due to the impact of the foreign exchange market, adverse fluctuations in the trading price of forward exchange sales and settlement derivatives may cause losses to the customer.

Note: Information herein is for reference only. Please refer to announcements and regulations of local branches of ICBC for further details. ICBC retains the ultimate interpretation rights.


(2014-04-25)
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