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 Option
FX Option
 

I. Introduction
Customer acquires the right upon payment of an upfront fee to ICBC, to buy from or sell to ICBC a specific amount of a currency at a pre-agreed exchange rate on a specified date. Customer also has the right not to buy/sell.
ICBC FX option is a simple European option. Currently two types of options are available for customers: FX call options and FX put options.

II. Target Clients
Domestic and overseas corporate clients that desire to hedge against currency fluctuation to preserve value.

III. Functions and Features
Customer uses FX options to hedge against exchange exposure and lock down the cost of buying foreign exchange. Customer gets the protection when the exchange rate does not move in favor, or does not miss the opportunity to gain from favorable movement in the exchange rate. To the customer, the risk is limited, the only loss is the option fee.

IV. Advantages
1. Competitive product quotes: 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 design, currency, tenor, settlement currency and amount can be set to serve the individual needs of customers.
3. Ongoing dynamic management: ICBC provides regular valuation report on the product, and dynamic management services in line with the market movement and customer requirement.

V. Price
ICBC prices quoted to customers after all market factors taken into consideration, 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 check the details of Customer Evaluation Form submitted by the customer.
2. Sign master agreement: Customer who applies for this service must sign related agreement with ICBC.
3. Sign confirmation: ICBC will make a statement on the risk involved (cash flow analysis, market value and factors, maximum cash flow). Customer must confirm in written and sign the confirmation letter.
4. Pay option fee: Customer must pay an option fee to ICBC at the start of the period.

VIII. Definition
In the international market, the buying or selling of a FX option has three types if classified by exercising right:
1. European option: An option that only allows the buyer to exercise the right on the maturity date of the option.
2. American option: An option that the buyer can exercise the right any day during the validity period after closing.
3. Bermuda option: An option that can only be exercised on predetermined dates before the maturity date.

IX. Risk Warning
In FX swap contacts, you are exposed to market risk where floating gain/loss is determined by the exchange rate fluctuations and interest rate fluctuations of different currencies. You should fully understand the terms and conditions in the agreement and make independent decision. Under no circumstance ICBC shall be liable for any loss due to force majeure or accidental events.

X. Examples
Case I: Call option
Background: A customer has USD 1 million and needs to pay for import one month later in Japanese yen.
Customer's requirement: The customer wishes to avert the risk of Japanese yen appreciation in order to lock down cost, and willing to pay the upfront fee to lock down exchange rate.
Solution: The customer buys a European option from ICBC to exchange dollar into yen for a period of one month with a principal of USD 1 million. Assume the pre-agreed exchange rate is 94 yen for 1 dollar, then the company has the right to buy the agreed amount of yen at the rate of 1 dollar to 94 yen when the option matures.
The company will not execute the option if the spot dollar/yen rate upon the maturity of the option is 1 dollar to 100 yen, since the spot rate in the market is more favorable to buy yen.
On the contrary, if the spot rate is 1 dollar to 90 yen when the option matures, the company can decide to exercise the right to ask ICBC to sell yen at the rate of 1 dollar to 90 yen. In this case, the customer gains 4 yen more for 1 dollar, and reduces the cost of buying yen.
Case Ⅱ: Put Option
Background: A customer has 1 million euro and needs to pay for import one month later in US dollar.
Customer's requirement: The customer wishes to avert the risk of euro depreciation in order to lock down cost, and willing to pay the upfront fee to lock down exchange rate.
Solution: the customer buys a European option from ICBC to exchange euro into US dollar for a period of one month with a principal of 1 million euro. Assume the pre-agreed exchange rate is USD 1.3400 for 1 euro, then the company has the right to sell the agreed amount of euro at the rate of 1 euro to 1.3400 US dollar to ICBC when the option matures.
The company will not execute the option if the euro/dollar rate upon the maturity of the option is 1 euro to 1.3450 US dollar, since the spot rate in the market is more favorable to sell euro.
On the contrary, if the spot rate is 1 euro to 1.3350 US dollar when the option matures, the company can decide to exercise the right to ask ICBC to buy 1 million euro at the rate of 1 euro to 1.3400 US dollar. In this case, the customer gains 0.0050 US dollar more for 1 euro, and earns higher return.

XI. Consideration
A minimum of USD 1 million (or equivalent in other foreign currencies) is required.

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