Broken Forward

Product Description
A Broken Forward is a forward foreign exchange contract whereby a hedger of a foreign exchange exposure can buy a foreign currency at a pre-determined contract forward rate if the spot rate of the currency is below or above pre-determined lower and upper levels at maturity; if however the spot rate of the currency lies between the lower and upper levels at maturity then the hedger can buy currency at spot rate. If spot rate of the currency at maturity is more expensive than the pre-determined contract forward rate, then the hedger is protected at the pre-determined contract forward rate. However, if the spot rate is less expensive than the lower level at maturity then the contract forward rate is the pre-determined forward contract rate and the hedger has to buy the currency at the pre-determined forward contract rate at maturity regardless of where the spot rate is.

Risk Benefit Analysis

What are the benefits? • At maturity, if spot rate depreciates but still lies between the lower and upper levels, then the forward is broken and the hedger can buy the currency at spot rate; or otherwise if the underlying currency appreciates and is more expensive than the upper level at maturity, the hedger can buy the currency at the lower pre-determined rate. What are the risks? • The pre-determined forward contract rate of a Broken Forward contract is worse than that of the corresponding regular forward contract. • At maturity, if the spot rate is at or below the lower level, the contract forward rate is the pre-determined forward contract rate. The hedger has to buy the currency at the more expensive pre-determined rate.

Range Forward

Product Description
Range Forward may be suitable for a customer who wants to hedge his downside risk and do not mind giving away some upside benefit. The buyer of a currency who hedges using Range Forward is protected against any adverse move of the currency but should that currency move in his favour, he will only benefit up to the pre-determined downside level. Finally, if the currency trades between his upside and downside level, he is able to buy at the current spot rate.

Risk Benefit Analysis

What are the benefits? • Zero premium to protect underlying instrument. • Contracted rate is more attractive than the market forward rate at the inception of the contract • Provide protection within the range. What are the risks? • Client gives up some upside potential for their underlying hedge.

Knock Out Forward

Product Description
A Knock Out Forward allows a customer to hedge his foreign currency requirement at a rate much better than the forward rate, if the spot rate of the currency never touches a pre-determined trigger level during the life of the contract. However, if the spot rate touches the trigger level then the contract is terminated. The customer can then decide to take up another hedge or decide to leave his position open and buy the currency when the need arises.

Risk Benefit Analysis

What are the benefits? • Zero premium. • Contracted rate is more attractive than the market forward rate at the inception of the contract What are the risks? • No guarantee of a forward contract. • Customer must take a view that trigger would not be touched.

Window Knock Out Forward

Product Description
A Window Knock Out Forward is similar to a Knock Out Forward as it allows a customer to hedge his foreign currency requirement at a rate much better than the forward rate if the spot rate of the currency never touches a pre-determined level during the life of the contract. This structure allows customer to buy or sell a currency on a regular fixed period at a better than FX Forward rate if the spot rate of the currency never touches a pre-determined level during each fixed period. The knock out condition is limited to the specific period and will not affect the subsequent periods.

Risk Benefit Analysis

What are the benefits? • Zero premium. • The overall contract rate is more attractive than that in market forward contract rate at inception. • Even if one of the contracts get knocked-out, the rest of the outstanding forward contracts remain intact. What are the risks? • No guarantee of a forward contract. • The customer must take the view that the foreign currency will not touch the trigger levels during the life of the contract.

Lock In Forward

Product Description
A Lock In Forward is a forward foreign exchange contract whereby a hedger of a foreign exchange exposure can buy a foreign currency at spot rate on maturity date of the contract if the spot rate of the currency never breaches a pre-determined trigger level during the life of the contract and the spot rate of the currency on maturity is less expensive than a pre-determined lock in level. If spot rate of the currency on maturity is more expensive than the pre-determined lock in level, then the hedger is protected at the lock in level. However, if the spot rate ever breaches the trigger level then the contract forward rate is locked in at the lock in level and the hedger has to buy the currency at the lock in level on maturity regardless of where the spot rate is.

Risk Benefit Analysis

What are the benefits? • If the trigger is never breached, then the hedger can buy the currency at the prevailing cheaper rate if the underlying currency depreciates; or else if the underlying currency appreciates, the hedger can buy the currency at the lock in rate. • Even if the trigger is breached, the hedger is still protected at the lock in rate. What are the risks? • The lock in rate of a Lock In Forward contract is worse than that of the corresponding regular forward contract. • If the trigger is breached the contract forward rate is locked in at the lock in rate. If the underlying currency depreciates subsequently, the hedger has to buy the currency at the more expensive lock in rate.

Premium Forward

Product Description
Premium Forward allows the customer to buy or sell currency at a more attractive rate than the market forward rate at inception of the contract. At the same time, should the spot rate of the currency trades below or above the pre-determined level for the buyer of the currency, the buyer is committed to buy or sell an additional FX forward contract. Premium forward is ideal for customers who have constant exchange commitments.

Risk Benefit Analysis

What are the benefits? • Zero premium. • Guaranteed contract is more attractive than the market forward rate at inception of the contract. • The contract rate for the second contract, if exercised by the Bank, will be more attractive than the market forward rate at inception of the contract. What are the risks? • Customer must have the need for the second contract.

Ratio Par Forward

Product Description
Ratio Par Forward allows a customer to hedge his foreign currency exposure. Under this structure, customer is allowed to buy or sell a currency on a regular fixed period at a rate better than FX Forward rate for a specified amount if the Spot FX rate lies above the contract forward rate. If the Spot FX rate lies below the contract forward rate, customer buys or sells the currency for a larger pre-specified amount.

Risk Benefit Analysis

What are the benefits? • Assuming the currency pair is HKD/USD, If USD strengthens against HKD, customer is hedged at the contract rate. What are the risks? • If USD weakens against HKD beyond the contract rate, customer will make a loss. The loss in each period will be twice as much as the loss in regular forward or above, subject to the terms of the contract.

USD-CNY Non-Deliverable Forward

Product Description
USD-CNY non-deliverable forward (NDF) is a cash-settled forward contract on USD against CNY. Customer sells CNY and buys USD at the contract forward rate for a pre-specified amount. On contract expiry date, the contract will be net settled in USD. No CNY will be settled.

Risk Benefit Analysis

What are the benefits? • If USD strengthens against CNY, customer is hedged at a cheaper rate as specified in the NDF contract. What are the risks? • If USD weakens against CNY beyond the NDF contract rate, customer will make a loss.