Forward foreign exchange deals

A swap deal is, in effect, a combination of two foreign exchange contracts. These contracts could be. A swap deal will therefore involve two distinct products that you have created. The first leg of the deal will involve a particular product. And the second leg of the contract will involve a different product.

If you do not maintain a product combination, you will enter a different contract for each leg of the swap deal. The product involved would be BuyUSD. The second leg of the swap would involve BuyINR. Instead of entering two contracts for the different legs of the contract, involving two products you can enter one using a single product. This product would be a combination of the two products.

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In this field, you should specify the code by which the product combination is identified in the system. If you are defining a new product combination, enter a new code in this field.

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You can define a product that is a combination of two different products. You can create a product such that it can only be used over a particular period. The starting date for this period should be specified in this field. You can create a product that it can only be used over a particular period. The End Date of this period is specified in this field.

This field identifies the number of contract legs that can be defined under this product combination. The system defaults to a value of two legs.

Forward exchange rate

This cannot be changed. This is the marketing punch line for the product. The slogan that you enter here will be printed on the mail advices that are sent to the counterparties who are involved in deals involving the product. If the product is a combination of two other products, each leg of the deal corresponds to one product in the combination. For deals involving such a product, select the product for the first leg of the deal. Even if you have specified swap advices for both products in a combination, you can generate a single swap advice by choosing this option.

Such deals are usually done to take advantage of prevailing market conditions. D efining Attributes specific to FX Products 4. They are: Spot deals Forward deals Spot deals When a foreign exchange deal is settled within spot days usually two days of entering into the deal, it is referred to as a Spot Deal. While spot deals settle on the spot date, Cash deals settle on the same day Tomorrow, or TOMs, settle on the next working day Forward deals A foreign exchange deal that is settled beyond the spot days of entering the deal is referred to as a forward deal.

This chapter contains the following sections: Section 4.

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Description Enter a small description for the product. Type The first attribute that you define for a product is its type. Under each product type you can create any number of products. Slogan Enter a slogan for the product. Group Select the group to which the product belongs.

Forward transactions

Start Date Select the date from which the product is effective. End Date Select the date till which the product can be used. Remarks Enter any additional remarks about the product. Product Code The product for which you are maintaining preferences is defaulted here.

Forward Transactions | BankSA

Description The description of the product is displayed here. Specifying Preferences for Forward Contracts Option Date Allowed For a product, you can indicate whether an Option Date can be specified for forward deals during deal processing. To allow an option date, check this box. Max Tenor In Months When you create a product, you can specify the maximum tenor for forward deals involving the product.

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Selecting Fields for Rekey Counterparty Check this box if you want the counterparty details to be rekeyed. Deal Currency Check this box if you want the deal currency details to be rekeyed. Deal Amount Check this box if you want the deal amount details to be rekeyed. Value Date Check this box if you want the Value date details to be rekeyed. Exchange Rate Check this box if you want the exchange rate details to be rekeyed. You can specify any or all of the above details for rekey. Input Mode Specify the mode through which product can be used to book contracts.

The tenor of FX contract will be arrived as follows: Fixed: Bought value date — booking date Rolling: Bought value date — Branch date Method If you have opted to revalue the foreign currency liability for a product, you must also specify the revaluation method by which the profit or loss is to be calculated. Payment on Confirmation If this field is checked, the system will send the payment messages Non-Deliverable Forward Details A Non-Deliverable Forward NDF is an outright forward or futures contract in which counterparties settle the difference between the contracted NDF price or rate and the prevailing spot price or rate on an agreed notional amount.

In this approach two contracts are initiated manually, they are: First deal NDF Forward Contract is a forward deal between the settlement currency and the NDF currency.

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Specify the following details. Frequency If you allow revaluation of your foreign currency liabilities for a product, all deals involving the product will be revalued regularly. Note Contingent booking entries are passed for the discounted amounts. On Revaluation: The interest in both the currencies is accrued separately on a daily basis, starting from the spot date till the maturity date of the contract. For example, you want to buy a piece of property in Japan in three months in Yen.

ACCA F9 Foreign Exchange Risk Management – Forward contracts

Here you could use a forward. Regardless of what happens during the next three months on the exchange rate, you would pay the set rate you have agreed on rather than the market rate at the time. This same scenario applies to importing and exporting in terms of buying products in one currency e. Spot and forward foreign exchange agreements and contracts can be established through any sophisticated international banking facility—just ask. But you must first become a bank customer, complete appropriate paperwork and will, more than likely, have to make a deposit to serve as cash collateral.

The primary advantage to spot and forward foreign exchange is it helps manage risk: allowing you to protect costs on products and services bought abroad; protect profit margins on products and services sold overseas; and, in the case of forward foreign exchange, locks in exchange rates for as long as a year in advance. It enables you to avoid the risk of currency fluctuations.

It is called currency hedging. Because of this level of customization, it is difficult for either party to offload the contract to a third party. Also, the level of customization makes it difficult to compare offerings from different banks, so there is a tendency for banks to build unusually large fees into these contracts. Finally, a company may find that the underlying transaction for which a forward contract was created has been cancelled, leaving the contract still to be settled. If so, the treasury staff can enter into a second forward contract, whose net effect is to offset the first forward contract.

An additional issue is that these contracts can only be terminated early through the mutual agreement of both parties to the contracts. Articles Topics Index Site Archive. About Contact. Overview of Forward Exchange Contracts A forward exchange contract is an agreement under which a business agrees to buy a certain amount of foreign currency on a specific future date.