I. Description RMB Forward Rate Agreement refers to the financial contract between the customer and ICBC, agreeing to calculate the interest with the contract rate and reference rate based on the specified nominal principal on some day in the future. The buyer pays the interest calculated with contract rate, while the seller pays the interest calculated with reference rate. Currently, 3-month SHIBOR is applied to the floating rate.
II. Target Customers It is targeted at financial institutions with relevant demand and non-financial institutions for the purpose of hedging.
III. Functions RMB Forward Rate Agreement is an underlying interest rate derivative, with clear and simple structure and flexible elements. The customer can use it to hedge against the market risk of short-term interest rate fluctuations and lock its financing cost; secure cheaper debt through the portfolio of underlying product and forward rate agreement by seizing the arbitrage opportunity in the financial market.
IV. Features and Advantages 1. Competitive prices: As the market maker of RMB forward rate agreement, ICBC has professional and experienced teams for trading, product design and quantitative analysis, flexible pricing mechanism and powerful competitive edges, thus providing favorable prices. 2. Tailored product design: Flexible design of product term and structure based on the market condition to satisfy the customer's diversified demand for securing or cutting financing cost 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 according to the price trend on forward rate agreement market 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 banking service time at the sub-branch or branch with this product.
VII. Application Procedures 1. Customer evaluation: ICBC performs the due diligence, credit rating and credit review and fills in the Customer Evaluation Form. 2. General agreement signing: After passing the evaluation by ICBC, the customer signs the Agreement on the Risk Management on Behalf of Customers by Industrial and Commercial Bank of China. 3. Application: The customer submits the Service Request Form to ICBC and ICBC presents the Customer Confirmation letter, making a statement on the risk involved according to transaction term, indicators, cash flow analysis, market value and influence, potential loss in market value. The customer shall confirm the risk prompts in writing. 4. Confirmation: The branch submits the service request to the Head Office. After the Head Office confirms to close the transaction, the branch issues the Transaction Confirmation Letter to the customer as the official transaction voucher.
VIII. Special Point Currently, the minimum nominal principal is RMB5 million with the minimum increase unit of RMB100,000. The transaction term shall be no less than one month and no more than one year.
IX. Risk Prompt The customers may gain or lose from the interest rate fluctuations. The customer may suffer loss when terminating the transaction that appears to lose. The floating gain or loss, however, will not affect the effectiveness of management if the underlying assets for the forward rate agreement and arbitrage fully match.
X. Typical Case An enterprise customer planned to borrow a short-term loan at 3-month SHIBOR after 3 months. To hedge a possible increase in SHIBOR, the customer entered a RMB forward rate agreement with ICBC, paying the fixed rate of 4.40% to ICBC and charging the floating 3-month SHIBOR from ICBC to hedge the original loan cost.
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.