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Forward FX Interest Rate Swap

I. Description
The future foreign exchange interest rate swap refers to the financial agreements in which the customer and ICBC commit to calculate and exchange interest according to the agreed principal of foreign exchange and interest rate in a certain period after a future date. It is commonly reflected by the exchange between fixed interest rate and floating interest rate. The counterparties don’t exchange the principal, which also serves as the basis for interest calculation. At present, the floating interest rate of foreign exchange interest rate swap includes 1-month LIBOR, 3-month LIBOR and 6-month LIBOR.

II. Target Customers
The business is applicable to domestic and overseas legal person customers with the purpose of hedging and avoiding the risks in interest rate fluctuation, especially those holding medium- and long-term foreign exchange loans with floating interest rate and wishing to making use of the current low interest rate market environment.

III. Functional Features
The product has a simple and clear transaction structure and flexible product elements. No expense is required at the beginning. Customers can conduct swap transactions at an agreed future date without the need of spot transaction. By using this product, customers can circumvent the market risk of interest rate fluctuations to some extent and fix the financing costs of enterprises. At the same time, the customers may, based on market prices for interest rate swaps of different terms, select the most favorable loan interest payment structure to reduce corporate financing costs.

IV. Features and Advantages
1. Competitive product prices: With professional and experienced traders as well as product design and quantitative analysis teams, flexible pricing mechanism and strong competitiveness among peers, ICBC can provide superior product prices.
2. Customized product design: ICBC can flexibly combine product deadlines, structure and other factors according to customer needs. At the same time, the product also supports other currencies, such as the euro, to meet the personalized needs of customers.
3. Continual and dynamic management: ICBC can regularly provide customers with product evaluation reports, and provide sound dynamic management services according to the market quotations and the customers’ demands.

V. Price
ICBC will provide quotations for the customers according to the price trend of exchange interest rate swap market, and make real-time updates based on market changes.

VI. Service Channels and Hours
Customers may submit business applications to sub-branches or tier-2 branches with the derivative business operating authority during the business hour for corporate business of ICBC.

VII. Application Process
1. Customer evaluation: ICBC conducts due diligence on customers to evaluate the customers comprehensively based on the business nature, financial derivative trading experience and internal management controls, in order to recommend suitable products for customers.
2. Signing of the Master Agreement: To apply for the future foreign exchange interest rate swap business, customers must sign related business agreements with ICBC.
3. Provision of guarantee: The customer has to pay the security deposit or provide collateral, or apply for the occupation of special credit line for derivative transactions.
4. Risk disclosure and signing of acknowledgement: ICBC provides risk disclosure for customers, covering cash flow analysis, market value and influencing factors, and potential market value losses. The customer must confirm the contents of the risk disclosure in writing and sign the acknowledgement.

VIII. Risk Prompt
The customer may face risks of native net cash flow due to the possible changes in market interest rate, loss or profit in market value assessment, additional margin being required in cases of negative results of market value evaluation, additional cost being incurred from squaring. At the same time, customers should fully understand the provisions of the agreement and make independent decisions. ICBC will not assume any responsibility for any loss caused by force majeure and accidents.

IX. Business Case
1. Business background
A corporate customer has a three-year USD loan with floating interest rate. The interest rate is 3-month LIBOR+250BPs and the interest is paid once every 3 months. The U.S. economy is still relatively weak in the short term, but in the future, with the clear improvement of the economy, the interest rate will gradually increase and the period of low interest rate will end.
2. Customer needs
The customer believes that the three-month USD LIBOR will remain low in the short-to-medium term, and there is no need to lock in interest rates. What it concerns is that the interest rate will increase fast in the medium-to-long term. In other words, they want to avoid the risk of rising interest rates in the future, while enjoying the benefits of low interest rate market at present.
3. Solutions
The customer may choose the future USD interest rate swap business at ICBC: The two parties agree that at one time point in the future, the customer and ICBC will conduct the USD interest rate swap transaction where ICBC will pay the customer interest at the floating rate of a three-month LIBOR+250BPs to offset the original floating interest rate of loan, and the customer will pay ICBC interest at a rate. Through the future USD interest rate swaps, customers can make use of the current low market interest rates, and fix the future financial costs to avoid the risk of rising interest rates after a period of time.

X. Notes
The business has the lower limit of USD2 million or equivalent and the shortest term of 6 months (settled once every month).

Note: The information given on this page is for reference only. See the announcements and rules of local outlets for details.

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