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FX Forward Rate Agreement

I. Description
Forward foreign exchange interest rate agreement means a financial contract of interest which customer and ICBC agree to calculate as per contractual and reference interest rates on the basis of agreed notional principal on the agreed day to come. The buyer to the forward foreign exchange interest rate agreement pays the interest as per contractual rate, and the seller pays the interest as per reference rate. At present, the floating interest rate of forward foreign exchange interest rate agreement includes 3-month LIBOR and 6-month LIBOR.

II. Target Customers
The product is applicable for legal person customers of enterprises established in the territory of the People’s Republic of China (excluding Hong Kong, Macao and Taiwan) with needs and for the purpose of hedging.

III. Functional Features
The product is the most fundamental off-exchange interest rate derivative instrument. Both parties reach a one-to-one agreement on transaction. It is characterized by clear and simple structure and flexible elements. By using this product, the customer can circumvent the market risk of short-term interest rate fluctuations and lock the financing costs of enterprises. In addition, the arbitrage opportunities in the financial market can also be taken to reduce the financing costs of enterprises through combination of underlying product and forward interest rate agreement transaction.

IV. Features and Advantages
1. Competitive product quotation: the forward foreign exchange interest rate agreement market is relatively developed, market liquidity is relatively high and various products are available. In addition, ICBC can directly inquire in the market and conduct hedging. 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 prices.
2. Customized design: the product is flexible to meet customers’ different needs through combination of product period, structure and other elements.
3. High-quality product service: 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 to the customers according to the price trend of forward foreign exchange interest rate market, and make real-time updates based on market changes.

VI. Service Channels and Hours
Corporate customers meeting access conditions may apply to corresponding sub-branches or branches during their trading hours.

VII. Application Process
1. Customer assessment: ICBC carries out due diligence of the customer, comprehensively assesses it based on its business nature, financial derivative trading experience and internal management & control, and recommends suitable product varieties to it.
2. Signing of the master agreement: To apply for the forward foreign exchange interest rate agreement business, the customer must sign related business agreements with ICBC.
3. Implementation of guarantee measures: the customer needs to pay security deposit, implement other guarantee measures or may occupy special credit limit of derivative transaction.
4. Risk disclosure and confirmation signing: ICBC gives risk warning to the customer in terms of cash flow analysis, market capitalization, influence factors and potential market capitalization loss. The customer needs to confirm risk warning contents in writing and sign the confirmation.

VIII. Risk Prompt
The forward interest rate agreement business conducted by the customer may experience floating profit/loss due to exchange rate fluctuation. In case of losses, the customer has to assume losses eventually. However, if the forward interest rate agreement is completely matched with the underlying assets of hedging, the floating P/L will not affect the effectiveness of management.

IX. Business Case
Business background: an enterprise customer plans to raise a short-term fund at the interest rate of 3M+LIBOR three months later.
Customer demand: the customer worries about LIBOR interest rate rise and hopes to seek protection in the environment of rising interest rate.
Solution: the customer conducts forward foreign exchange interest rate agreement transaction with ICBC, and pays fixed interest rate of 0.45% to ICBC. ICBC collects floating interest rate as per 3M+LIBOR to hedge original loan cost.

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

Note: The information provided on this page is for reference only. Concrete business shall be subject to the announcements and provisions of the local outlet.

Global Market