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Accumulative Termination Forward Foreign Exchange

I. Description
Accumulative termination forward foreign exchange means the customer and ICBC sign a forward foreign exchange contract, specifying that it will conduct one or more foreign exchange transactions with ICBC. In addition, delivery date, currency, transaction direction, delivery exchange rate and transaction amount of each foreign exchange trading should be specified in advance. Meanwhile, both parties set forth an automatic transaction termination provision with an accumulative return goal. When a customer’s accumulative return attains such goal on any delivery day, the agreement will be automatically terminated. That is, except for payables on and before such delivery day, both parties won’t have any mutual rights and obligations regarding the transaction. If lower than such goal, both parties should continue foreign exchange delivery according to the contract.

II. Target Customers
It is applicable to corporate customers at home and abroad that need to avert exchange rate fluctuation risk for the purpose of hedging, and intend to conduct forward transactions to manage exchange rate risks and thus obtain better forward exchange rate.

III. Functional Features
The product is a derivative originating from ordinary foreign exchange parity forward products. It has simple and clear structure and flexible elements. There is no need to pay fees at an early stage. Customers may avert market risk of exchange rate fluctuation through the product, and can conduct transactions at the exchange rate better than that of ordinary forward to reduce corporate foreign exchange purchase cost.

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 design: the product is flexible to meet customers’ different needs based on product period, delivery frequency, delivery amount and accumulative returns.
3. Continuous dynamic management: ICBC can regularly provide customers with transaction evaluation reports, and provide subsequent dynamic management services according to market quotations and their demands.

V. Price
ICBC provide quotation to customers after consideration of market factors, and make real-time updates based on market changes.

VI. Service Channels and Hours
Corporate customers meeting access conditions may apply to sub-branches or tier-2 branches with the derivative business operation right during trading hours for corporate business.

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 the master agreement: to apply for accumulative termination forward foreign exchange, customers needs to sign relevant business agreements with ICBC.
3. Implementing guarantee measures: customers need to pay security deposit or hand over collateral or may apply for occupying special credit limit of derivative transaction.
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. Customer need to confirm risk warning contents in writing and sign the confirmation.

VIII. Risk Prompt
Risks that customers may face: the exchange rate on the delivery day is inferior to spot exchange rate; the product reaches the set level early, leading to inadequate hedging; market capitalization is assessed to make profits or suffer losses; the worse market capitalization assessment result requires additional security deposit; and reversed squaring may incur additional fees. Customers shall completely understand every article and make independent decision based on their own judgment. Customers shall take into account force majeure and possible accidents, losses arising from which have nothing to do with ICBC.

IX. Business Case
Business background: some corporate customer has USD income and is expected to make multiple spending in JPY and with different periods and amounts in coming three years.
Customer need: hope to avert JPY appreciation risk, lock financial cost and intend to conduct forward foreign exchange business. However, it regards current forward exchange price of JPY too high and wishes to buy JPY at a lower price to reduce exchange purchase cost.
Solution: the customer may conduct accumulative termination forward foreign exchange transaction with ICBC. They agree on that, the accumulative return is earned from the difference between forward delivery exchange rate and spot exchange rate on the deliver day, and the income goal is 2.3% of delivery principal. Provided that the accumulative return of the customer is no more than 2.3%, ICBC undertake to sell JPY to the customer at the delivery exchange rate superior to ordinary forward exchange rate on the signing day of the contract. If the income exceeds 2.3% of notional principal on some delivery day, except for payables on and before such delivery day, all agreed foreign exchange deliveries afterwards shall be canceled (spot exchange rate: USD1:JPY93.18).

X. Notes
Minimum amount of such transaction is USD2 million or equivalent.

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