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  Home Page > Corporate Banking >Financial market >Products & Services >Risk management products - exchange rate >Forward Foreign Exchange Trading (Terminated by Cumulative Returns)
Forward Foreign Exchange Trading (Terminated by Cumulative Returns)
 

I. Description
Forward Foreign Exchange Trading (Terminated by Cumulative Returns) refers to a forward foreign exchange trading contract between the customer and ICBC, agreeing that the customer will conduct foreign exchange trading once or more than once with fixed delivery date, currency, direction, delivery exchange rate and amount for each transaction. Meanwhile, both sides set forth an automatic termination term triggered by a cumulative return target, meaning that the contract is automatically terminated on any delivery day when the cumulative return target is reached. Both parties do not have any mutual rights and obligations about this contract except the amount payable on this delivery day and before. If the cumulative return of the customer is lower than this target, both parties shall continue the foreign exchange delivery under the contract.

II. Target Customers
It is targeted at domestic and overseas corporate customers who want to do forward trading to manage the exchange rate risk and obtain favorable forward exchange rate for hedging and mitigating exchange rate risk.

III. Functions
Forward Foreign Exchange Trading (Terminated by Cumulative Returns) is a derivative product with simple and clear structure and flexible elements, developed from common par forward foreign exchange products. There is no fee at the period beginning. The customer can mitigate some market risk out of exchange rate fluctuation and enjoy a more favorable exchange rate than common forward foreign exchange rate on the delivery day, thus cutting the cost of foreign exchange purchase.

IV. Features and Advantages
1. Competitive prices: With professional and experienced teams for trading, product design and quantitative analysis, flexible pricing mechanism and powerful competitive edges, ICBC can provide favorable prices.
2. Tailored product design: Flexible design on the product term, delivery frequency, delivery amount and accumulative returns to satisfy the customer's diversified demand.
3. Constant dynamic management: Regular evaluation report and follow-up dynamic management service based on the market movement and customer demand.

V. Price
ICBC offers prices to the customer based on the market condition and updates the quotation in line with the market changes.
VI. Service Channels and Hours
Qualified corporate customers can apply for this product in the corporate banking service time at the sub-branch or tier-two branch with the derivatives trading authority.

VII. Application Procedures
1. Customer evaluation: ICBC performs the due diligence by evaluating the customer's business nature, financial derivatives trading experiences and internal management and control and recommend proper products for the customer.
2. General agreement signing: The customer has to sign the business agreement with ICBC to apply for Forward Foreign Exchange Trading (Terminated by Cumulative Returns).
3. Guarantee measures: The customer has to pay the margin or provide collaterals, or can apply for charging the special credit line of financial derivatives trading.
4. Risk disclosure and confirmation letter signing: ICBC makes a statement on the risk involved, indicating the cash flow analysis, market value and factors, potential loss in market value. The customer must confirm the acknowledgment of risk involved in writing and sign the confirmation letter.

VIII. Risk Prompt
The customer may face risks that exchange rate on the delivery day might be lower than spot exchange rate, hedging is not sufficient as the contract is terminated in advance when pre-set return target is reached, the market value estimation might lead to gain or loss, deteriorating market value estimation result calls for more margin, reverse squaring might cause additional fee. Meanwhile, the customer shall 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.

IX. Typical Case
Business background: A corporate customer has USD income and is expected to make several JPY expenditures with different terms and amount.
Customer demand: The customer hopes avoiding the JPY appreciation risk and locking the financial cost. He has intention to apply for the forward foreign exchange trading, but believes that the JPY forward exchange rate is too high for the moment and hopes purchasing Japanese yen with more favorable price to cut down the cost.
Solution: The customer can apply for Forward Foreign Exchange Trading (Terminated by Cumulative Returns) from ICBC, agreeing that the accumulative return is the aggregate value from forward delivery exchange rate against spot exchange rate on the delivery day and the accumulative return target is 2.3% of delivery principal. As long as the customer's accumulative return is no more than 2.3%, ICBC promises to sell Japanese yen to the customer with the delivery exchange rate superior to the common forward exchange rate on the day when the contract is concluded. If the customer's accumulative return exceeds 2.3% of nominal principal on a delivery day, the foreign exchange delivery under the contract (the spot exchange rate is USD1 against JPY93.18) shall be canceled except the amount payable on this delivery day and before.

X. Special Points
The minimum amount for this transaction is USD2 million (or equivalent in foreign currency).

Note: The contents on this page are for reference only. The ultimate power of interpretation is under the Industrial and Commercial Bank of China Limited. For part of the contents, notice and specific regulations of local branches shall prevail.


(2015-04-24)
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