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 >Forward FX (Unilaterally Termination)
Forward FX (Unilaterally Termination)
 

I. Introduction
This is a service whereby a forward contract is signed between ICBC and the customer, who will buy and sell foreign currency with ICBC for delivery on an agreed date in the future, either one transaction or many transactions. The delivery date, currency, buy/sell, settlement rate and amount for each transaction are agreed in advance. Besides, both parties set the condition for automatic termination. Once the transaction reaches the condition, the transaction stated in the contract will be automatically terminated. The condition for automatic termination includes three aspects: exchange rate index (eg. spot rate), termination rate and termination range. 

II. Target Clients
Corporate clients that desire to hedge against currency fluctuation to preserve the value, and wish to use forward FX contracts to manage exchange rate risk and get better forward rate.

III. Functions and Features
Forward FX (unilaterally termination) is a common OTC derivative based on general forward FX, simple structure, very flexible, no upfront fee. It is primarily used by companies to hedge against market risk due to exchange rate volatility, buy foreign currency at a rate lower than general forward FX rate on the settlement date.

IV. Advantages
1. Competitive product 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, with customized design to meet the special needs of customers to lower or lock down cost of buying FX.
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 recommend suitable products.
2. Sign master agreement: Customer has to sign necessary agreements with ICBC first.
3. Supply guarantee: Customer must pay margin or provide collateral to cover the obligation, 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. Definition
Two key factors for automatic termination conditions:
1. Foreign exchange observation index
(1) Observe the exchange rate on a continuous basis. Whenever the exchange rate index reaches the termination rate at any time point within the observation period, the forward FX contract will be automatically terminated.
(2) Observe the exchange rate at a specific point. Only observe the fixed value at a specific time point on one observation date agreed. Only when the fixed value reaches the termination rate, the forward FX contract will be automatically terminated.
2. Termination range
In general, a unilaterally-terminated forward foreign exchange contract involves many settlements in a certain period. When the contract is automatically terminated, options for the termination range can be:
(1) Only terminate FX settlements in current period.
(2) Terminate all FX settlements in current and later periods.
The above two factors can be combined into four different conditions.
Unilaterally-terminated forward foreign exchange contracts represent one type of risk management product under exchange rate category. Tenor, settlement frequency and amount, termination conditions can be set to serve client business need.

IX. Risk Warning
Risks can be exchange rate on the settlement date lower than spot rate, insufficient hedging due to early termination of the contract, gain or loss depending on market value assessment, extra fee for margin calls or reverse close-out due to difference in market value assessment. 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. Example
Background: A customer has USD income and expects to make payments in Japanese yen one year later.
Customer's requirement: The customer wishes to enter a FX forward contract to protect against rising Japanese yen, lock down borrowing cost and exchange rate risk. The current 1-year USD/JPY forward rate is quite high at 83.23 Japanese yen in exchange for 1 US dollar. The customer wishes to buy yen at a better price to reduce the cost. The customer keeps track the JPY exchange rate and is knowledgeable about FX market, FX derivatives and potential risk.
Solution: The customer chooses to use ICBC unilaterally-terminated 1-year forward FX contract. Both parties agree: exchange rate index is the spot US dollar/yen rate, termination rate is 75. During the observation period before settlement date, if the spot dollar/yen rate is always 75 or above, ICBC commits to sell yen to the customer on the settlement date at the rate of 88.82 Japanese yen in exchange of 1 US dollar. If the spot dollar/yen rate within the observation period has gone down to 75 or less, all FX settlements stated in the contract will be cancelled. (Spot rate is 83.77 Japanese yen in exchange of 1 US dollar).

XI. Consideration
A minimum of USD 2 million (or equivalent in other foreign currencies) is required, shortest period is 3 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.


(2013-04-27)
Close