Management of exposure to both interest rate and currency risks through selected risk management tools.
We offer a team of experienced staff that will assist you in the management of exposure to both interest rate and currency risks by providing the following risk management tools:
How does this work?
2 types of option contracts, Calls and Puts.
A Call option contract gives the holder the right, but not the obligation, to buy a commodity at a mutually agreed price (strike price) on or before a certain date (the expiration date).
A Put option gives the holder the right, but not the obligation, to sell at the strike price, on or before the expiration date.
The options are classified as either American or European Options.
An American option may be exercised at any time before the expiration date, while a European option can only be exercised on the expiration date. The buyer of the options has to pay a price referred to as the Premium to the seller.
Interest Rate Swap
An Interest Rate Swap (IRS) transaction is a contract between two parties to exchange interest rate payments (cash flows) at a future date. It allows the flexibility to convert a fixed rate asset/liability to a floating rate asset/liability and vice versa.
There are 2 types of swaps which are traded daily by most markets - interest rate swaps (IRS) and currency swaps.
A currency swap is made up of an interest rate swap where payment flows are expressed in different currencies and determined by the interest rate of those currencies.
It can be structured as follows:
There is an exchange of principal at the beginning and upon swap maturity, at the same exchange rate which is, usually, the spot rate at the inception of the transaction.
Forward Rate Agreement
A Forward Rate Agreement (FRA) is a contractual agreement between two parties to fix the rate of interest for a future period on a specified notional principal, such as a loan or deposit.
An FRA is used to hedge an asset or liability. It is also a widely used instrument for investment, trading and arbitraging.
Standardisation of Swap Documents
Financial derivatives transactions generally involve a contract between two parties to fulfill a mutually agreed obligation in the future. Therefore, all contracts need to be legally documented to avoid disagreement or default in the future. The widely accepted market standard is the International Swap & Derivatives Association, Inc. (ISDA)