Corporate  Banking
Corporate Deposit
Loan Financing
Financing Lease
Bill Business
Settlement Service
Corporate Wealth Management
Corporate E-banking
Investment Banking
Assets Custody Business
Institutional Banking
Corporate Annuity Service
Small Business Finance
More Services
Financial market
  Underwriting/Issuance
  Corporate Risk Management
  Products & Services
     -  Underwriting of Financial Bond (Finance Company)
     -  Investment products
     -  Risk management products - exchange rate
    FX Forward Rate Agreement
    Forward FX at Par
    Forward FX (Unilaterally Termination)
    Forward Foreign Exchange Trading (Terminated by Cumulative Returns)
    Dual-currency Forward Exchange Sales and Settlement
    RMB-Foreign Exchange Option Portfolio
    FX Option
     -  Risk management products - interest rate
     -  Underwriting of Debt Instruments of Non-Financial Enterprises
     -  Underwriting of Asset-backed Securities
     -  FX Interest Rate Swap under Remittance Payment Link
     -  Risk management products - commodity
     -  Underwriting of Super Short-term Commercial Papers
  Bond Trading and Settlement
  overview
Internet Finance
 
  Home Page > Corporate Banking >Financial market >Products & Services >Risk management products - exchange rate >FX Forward Rate Agreement
FX Forward Rate Agreement
 

I. Introduction
A financial contract between ICBC and the customer which guarantees that the customer will be able to deal at an agreed rate of interest using contract rate and reference rate, on a future date for a notional amount. Buyer pays interest based on contract rate, seller pays interest based on reference rate. Currently FX forward rate agreement uses 3-month LIBOR rate, 6-month LIBOR rate.

II. Target Clients
Corporate clients established in People's Republic of China (excluding Hong Kong, Macau, Taiwan) who have the need to hedge against borrowing risk.

III. Functions and Features
FX forward rate agreements are the most typical OTC interest rate derivative. They are just contracts set up between two counterparties. They have clear, simple structure, very flexible. Customers use FX forward rate agreement to hedge short-term interest rate exposure and fix borrowing cost, or secure cheaper debt by buying and selling the underlying product in forward rate agreement in different financial markets to create a profit.

IV. Advantages
1. Competitive product quotes: Forex derivatives are often traded on exchanges. Forward market is a very liquid market for traders to buy/sell all types of derivatives. ICBC can quote price and hedge currency directly in the market. In terms of exchange rate quotes, ICBC has a team of experienced and professional traders, product designers and quantitative analysts, flexible pricing mechanism and strong competitive advantages against the peers.
2. Tailored product design: Very flexible in the design of the product. Tenor, structure can be set to serve client business need.
3. High-quality service: ICBC provides periodic valuation reports, and quality dynamic management services in line with the market movement and customer requirement.

V. Price
ICBC prices quoted to customers are based on the latest trend in FX forward rate market, and updated in real-time in line with the market changes.

VI. Service Channel and Hours
Eligible corporate clients are welcomed to apply within ICBC banking hours for corporate services at any sub-branch or tier-2 branch authorized to trade derivatives.

VII. Steps
1. Assess the customer: ICBC will make an overall assessment on the customer (business nature, experience in trading financial derivatives, internal management and control) and recommend suitable products.
2. Sign master agreement: Customer has to sign necessary agreements with ICBC first.
3. Supply guarantee: Customer must provide margin or other guarantees to cover the obligations, or use the credit line specially granted for trading derivatives.
4. Risk disclosure and sign confirmation letter: ICBC will make a statement on the risk involved (cash flow analysis, market value and factors, potential loss in market value). Customer must confirm in written and sign the confirmation letter.

VIII. Risk Warning
Customers may gain or lose from the interest rate fluctuations. Stop the forward rate agreement may suffer loss if it appears to lose. However, the floating gain or loss will not affect the management validity if the underlying asset used for the agreement and arbitrage fully matches.

IX. Example
Background: A company is looking to borrow a short-term loan at 3-month LIBOR rate in a 3 month time.
Customer's requirement: Customer is worrying that LIBOR rate might increase, and wish to protect against the rising interest rate.
Solution: customer enters a FX forward rate agreement with ICBC to pay fixed-rate interest of 0.45% and receive 3-month LIBOR floating rate from ICBC. 

X. Considerations
A minimum of USD 2 million (or equivalent in other foreign currencies) is required, shortest period is 6 months (settlement in every month).

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


Close