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  Home Page > Corporate Banking >Financial market >Products & Services >Risk management products - exchange rate >Forward FX at Par
Forward FX at Par
 

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, currencies, buy/sell, settlement rate and amount for each transaction are agreed in advance. Currency, buy/sell, settlement rate are exactly the same in all transactions, which means on each settlement date, customer buys or sells foreign currency with ICBC at one specified rate.

II. Target Clients
Corporate clients who wish to hedge against future exchange exposure in all later periodic FX trades, and manage exchange rate risk through forward contracts. 

III. Functions and Features
By entering into a forward contract, companies can lock down the exchange rates for many foreign exchange transactions at one time to hedge against exchange rate risk, simple and clear, instead of going through tedious procedures to sign many forward contracts with different exchange rates.  
Delivery date and amount can be specified according to customer's requirements.

IV. Advantages
1. Competitive product quotes: Forward market is a well-developed, liquid market for traders to buy/sell all types of currencies. 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, settlement frequency and amount can be set to serve the client business need to lock down the cost of buying foreign exchange.
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. Risk Warning
Risks can be negative cash flow on a future trade date if there is a change in market interest rate, 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.

IX. Example
Background: A customer has USD income and expects to make several payments in Japanese yen in the next three years, in different periods and amounts.
Customer's requirement:  The customer wish to avert the risk of yen appreciation and lock down the financial cost, not complicated, use one rate only.
Solution: The customer chooses to use ICBC forward FX at-par contract. The agreed exchange rate is 91.10, ie, in the next three years on each settlement date, customer buys specified amount of Japanese yen from ICBC at the rate of one US dollar for 91.10 Japanese yen. (Spot rate is 1 US dollar for 93.18 Japanese yen).

X. 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.


(2013-05-09)
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