Financial Markets products

By concluding a forward agreement you can:

• fix the exchange rate in advance;
• plan income and expenses irrespective of exchange rate fluctuations;
• avoid loss and restrain from potential profit due to exchange rate changes;
• set an earlier or later date for execution of the forward agreement, if necessary (see currency swap).

How the forward works

By concluding a forward agreement you hedge against exchange rate fluctuations and save time, because you don’t need to continuously follow the currency market.

By concluding a forward deal you are exposed to risk that due to unfavourable exchange rates changes in future you will have to execute the transaction at the rate lower than the market rate and lose potential profit.

Main service provision conditions

• In order to conclude a forward you need to enter into an agreement for derivative financial instruments traded on regulated markets (master agreement) and agreement for electronic services at the nearest Swedbank branch.
• In order to conclude a forward you need an account with Swedbank.
• The Bank imposes limits on transaction amounts. If you have no limit, you can conclude a forward agreement by providing collateral. The collateral amount is determined on a case-by-case basis and depends on the amount and term of the transaction.
• The transaction can also be concluded via ‘Traderoom’ electronic trading channel.

The dates of your inflows and outflows in a certain currency differ?

By concluding a swap you can:

• temporarily ‘borrow’ the currency you need by ‘collateralising’ another currency;
• plan your income and expenses irrespective of exchange rate fluctuations;
• avoid loss and restrain from potential profit due to exchange rate changes;
• set earlier or later dates for settlements under other currency purchase or sale transactions.

How the currency swap works

By concluding a swap you receive currency X in exchange for currency Y which you temporarily don’t need. After the transaction the currencies are exchanged back. You don’t need to execute two separate exchanges of currencies.

By concluding a swap deal you are exposed to risk that due to unfavourable exchange rates changes in future you will have to execute the transaction at the rate lower than the market rate and lose potential profit.

Main service provision conditions

• In order to conclude a swap you need to enter into an agreement for derivative financial instruments traded on regulated markets (master agreement) and agreement for electronic services.
• In order to conclude a swap you need an account with Swedbank.
• The Bank imposes limits on transaction amounts. If you have no limit, you can conclude a swap deal by providing collateral. The collateral amount is determined on a case-by-case basis and depends on the amount and term of the transaction.

The transaction can also be concluded via ‘Traderoom’ electronic trading channel.

A currency option is recommended when you want to hedge against exchange rate fluctuation risk while retaining the possibility to yield on exchange rate changes. If the exchange rate fixed during the transaction term does not satisfy you and the currency can be purchased or sold on the market at a more favourable exchange rate, you will not have to exercise the right to buy or sell.

By concluding an option you can:

• exercise the right to buy or sell at any time;
• hedge against the exchange rate fluctuation risk by limiting your loss to the paid commission – premium and retaining the possibility to yield on exchange rate changes;
• recover a part of the paid commission by selling back the option to the Bank;
• refuse to execute the transaction.

How the currency option works

A customer who concludes a currency option can buy or sell currency at any time during the transaction term. The costs of the currency option will not exceed the paid commission – premium and potential yields will depend on exchange rate changes.

Main service provision conditions

• In order to conclude a currency option you need to enter into an agreement for derivative financial instruments traded on regulated markets (master agreement) and agreement for electronic services.
• In order to conclude a currency option you need an account with Swedbank.

By submitting a limit order you can:

• save time because you don’t need to follow the currency market;
• have it executed at any time – during and after business hours of the Bank.

Main service provision conditions

• In order to conclude an option you need to enter into an agreement for derivative financial instruments traded on regulated markets (master agreement) and agreement for electronic services at the nearest Swedbank branch or by calling to us.
• In order to conclude an option you need an account with Swedbank.
• Minimal deal amount – 100 000 Eur

By concluding an interest rate swap you can:

• Change variable loan interest into fixed and vice versa;
• Forecast loan costs;
• Avoid loss and hedge against potential yields resulting from exchange rate changes.

By using an IRS you risk that due to unfavourable changes in interest rates you will have to pay higher interest or receive interest lower than the current market interest.

Main service provision conditions

• In order to conclude an interest rate swap you need to sign the Master transaction agreement and the E-service agreement.
• You need an account with Swedbank.
• The amount of transactions is subject to the established limit. If you have no limit, you need to provide collateral in order to conclude an interest rate swap. The amount of collateral in each case shall be determined separately and depends on the transaction amount and maturity.
• Minimum transaction amount – EUR 1 million.

Example
You have a loan with variable interest, i.e. EUR LIBOR + margin. You want to hedge against interest rate fluctuation risks. When an IRS is concluded, variable interest is changed into fixed interest. The Bank and the customer agree to exchange the interest rate difference: the Bank will pay to the customer variable interest (EUR LIBOR), and the customer will pay to the Bank fixed interest.

The customer who concludes an IRS continues paying to the Bank interest on the loan, i.e. EUR LIBOR + margin. If LIBOR fluctuates below the fixed interest rate, the customer pays to the Bank the difference between LIBOR and fixed interest rate; if LIBOR rises above the fixed interest rate – the Bank pays this difference to the customer.

When LIBOR rises, the Bank reimburses to the customer the higher interest paid on the loan. In the event of fall of LIBOR the customer will have to pay higher interest than the current market interest.

By concluding a cap option you can:

• Hedge against increase in loan costs by limiting the loss to the paid commission – premium and retaining the possibility to yield on interest rate fluctuations;
• Forecast loan costs;
• Choose the desired cap interest rate.

The customer who purchases a cap option hedges his loan against rise in interest rates. When during the respective period LIBOR exceeds cap interest rate, the Bank begins paying to the customer a difference between LIBOR and cap interest rate. The customer can choose the cap interest rate himself; the lower is the cap interest rate, the higher is the commission. No payments are made if LIBOR does not rise above the cap interest rate.

Main service provision conditions

• In order to conclude a cap option you need to sign the Master transaction agreement and the E-service agreement.
• You need an account with Swedbank.
• Minimum transaction amount – EUR 1 million.

By concluding a floor option you can:

• Hedge against fall in interest rates by limiting the loss to the paid commission – premium and retaining the possibility to yield on interest rate fluctuations;
• Choose the desired floor interest rate.

The customer who purchases a Floor option hedges the borrowed funds against fall in interest rates (where his return depends on changes in LIBOR). Where LIBOR of a respective period falls below floor interest rate, the Bank begins paying to the customer the difference between LIBOR and floor interest rate. The customer can choose the floor interest rate himself; the higher is the floor interest rate, the larger will be the commission. No payments are made if LIBOR does not fall below the floor interest rate.

Main service provision conditions

• In order to conclude a floor option you need to sign the Master transaction agreement and the E-service agreement.
• You need an account with Swedbank.
• Minimum transaction amount – EUR 1 million.

By concluding a floor option you can:

• Hedge against interest rate fluctuation risk without any additional payment for that;
• Forecast loan costs.

Example: hedging against rise in interest rates
In order to hedge your loan free of charge against rise in interest rates, you need to purchase a cap option and to sell a floor option. Where LIBOR of a respective period rises above the cap interest rate, the Bank begins paying to you the difference between LIBOR and cap interest rate. Where LIBOR of a respective period falls below the floor interest rate, you start paying to the Bank the difference between LIBOR and floor interest rate. The highest interest rate to be paid by you on the loan having concluded a collar option is the cap interest rate. If LIBOR drops below the floor interest rate, you will have to pay interest higher that the current market interest.

Main service provision conditions

• In order to conclude a floor option you need to sign the Master transaction agreement and the E-service agreement.
• You need an account with Swedbank.
• Minimum transaction amount – EUR 1 million.

No payments are made when LIBOR is between cap and floor interest rates.

All conditions of a futures contract, except for its price, are standardised:

• the underlying financial assets (securities, currencies, equity indices, interest rates, commodities, etc.);
• the amount of one transaction;
• the last trading day of a futures contract.

By concluding a futures contract:

• you can hedge against a rise or fall in the value of the particular underlying financial assets irrespective of potential losses or potential yields gains due to change in the asset prices (oil, metal prices, etc.);
• you don’t need to have the full amount for concluding the contract, it is enough to have the funds for collateral and payment of the transactional fee;
• benefit from leverage effect – the collateral value is smaller than the value of the underlying financial asset at that time and, therefore, you can generate higher yields or incur greater losses than when directly investing in the selected financial instruments.

By concluding a futures contract you risk that due to unfavourable future changes in the underlying financial asset’s price you will have to execute the contract at the price that will be lower than the market price and incur losses.

Main service provision conditions

• In order to conclude a futures contract you need to enter into an agreement for derivative financial instruments traded on regulated markets, for intermediation services and for electronic services.
• In order to conclude a futures contract you need an account with Swedbank.
• The Bank imposes limits on transaction amounts. If you have no limit, you can conclude a future agreement by providing collateral. The collateral amount is determined on a case-by-case basis and depends on the amount and term of the transaction.

Futures contracts may be concluded by legal clients. Customers engaged in business related with securities, trade in commodities (oil products, metals, wheat, wood, etc.), securities, currencies, interest rates, etc., can obtain insurance cover against changes in prices of the underlying financial assets.

Upon purchase of a certain futures contract to hedge against the increase in the price of the underlying financial asset, the futures contract of the same type has to be sold until its expiry. Where the price of the underlying financial asset actually increases, income received from the futures contract will cover the costs of the purchase of the real financial asset (oil, metals) at a higher price. Where the price of the financial asset falls – you will incur a loss from the futures contract which will be compensated by the purchase of the real financial asset at a lower price.

By concluding an option:

• you can hedge against the rise or fall in the value of a particular underlying financial asset by limiting the loss to the paid premium and retaining the possibility to yield on changes in the asset price (oil, metals, etc.);
• you don’t need to have the full amount for concluding the contract, it is enough to have the funds for collateral and payment of the transactional fee;
• benefit from leverage effect – the premium rate is lower than the value of the underlying financial asset at that time and, therefore, you can generate higher yields or incur greater losses than when directly investing in the selected financial instruments.

When buying an option you risk that due to unfavourable future change in the financial asset price you will lose only the premium you have paid. When selling an option you risk that due to unfavourable future change in the financial asset price you will incur losses exceeding the received premium.

Main service provision conditions:

• In order to conclude an option you need to enter into an agreement for derivative financial instruments traded on regulated markets, for intermediation services and for electronic services.
• In order to conclude an option you need an account with Swedbank.