Your foreign exchange demands vary wildly and so do our solutions. They start out at the simple end of the scale and range right up to the sophisticated end. What’s more, we use our intelligent market information and consultative approach to deliver the results you need.
These tools help you to:
A Dual Currency Deposit Account makes perfect sense if you:
With a Dual Currency Deposit, you place your cash on fixed-term deposit with us. We agree a pre-determined Conversion Rate that’s better than the current forward rate. We pay an enhanced rate of interest that’s higher than the base rate of the deposited currency.
If the spot rate on maturity is above the pre-agreed Conversion Rate, then we’ll convert the deposited currency at the Conversion Rate. We’ll also pay back your enhanced rate of interest in your original currency.
Just tell us your:
Advantages
Disadvantages
Company ABC imports goods from the US, and needs to buy USD 5,000,000 over the course of 12 months to pay its suppliers. The company’s budget rate is set at 1.4500 and it currently has GBP 1m sitting on account earning 1% interest. At some point in the future, it needs to convert the GBP into USD but there is no pressing requirement.
The current GBP/USD spot rate is 1.5600 and the 1-month forward rate is 1.5500. Company ABC places GBP 1m on an Investec Dual Currency Deposit for a term of 1 month. The Conversion Rate for the Dual Currency Deposit is set at 1.6000 (15 cents better than their 1.4500 budget, and above the current spot/forward rate) and the enhanced interest is set at 5% (4% above their current return).
When the Dual Currency Deposit expires, two things could happen:
Scenario 1
GBP/USD strengthens, and at maturity of the contract the exchange rate is 1.6600. Company ABC receive USD 1,600,000 (GBP 1,000,000 converted @ 1.6000) plus the enhanced interest in GBP of 5.00%.
Scenario 2
GBP/USD weakens, and at maturity of the contract the exchange rate is 1.4300. Company ABC receive GBP 1,000,000 plus the enhanced interest in GBP of 5.00%.
A Participating Forward has a guaranteed exchange rate – just like a standard forward contract. However, it also benefits from any favourable exchange rate movements on an agreed percentage of the total contract.
A Participating Forward can make perfect sense if:
Just tell us your:
Advantages
Disadvantages
Company ABC imports goods from the US, and needs to pay USD 1,000,000 in six months’ time to its supplier. The forward rate for six months is 1.5500.
Company ABC wants to benefit from favourable exchange rate moves, but doesn’t want to pay a premium for the privilege. Instead, it’s prepared to accept a worst-case rate of 1.5300. Based on this, we calculate a pre-agreed participation level. In this example, that works out at 50% (USD 500,000).
When the Participating Forward expires, one of two things could happen:
Scenario 1
The GBP/USD rate weakens and the exchange rate at maturity is 1.4300. Company ABC is entitled to buy its full USD 1,000,000 at 1.5300.
Scenario 2
The GBP/USD rate strengthens, and the exchange rate at maturity is 1.6600. Company ABC has to buy USD 500,000 at 1.5300. However, the remaining USD 500,000 can be bought in the spot market at 1.6600. This gives the company an average rate of 1.5950.
A Ratio Forward gives you a guaranteed exchange rate (the ‘Protected Rate’) on up to 100% of your exposure, at rates better than the currently available forward rate.
At expiry, if the spot rate is more favourable than the Protected Rate, you get the Protected Rate on 100% of the agreed exposure. But if the spot rate is trading at less than the Protected Rate, a pre-agreed ratio (e.g. 50%) is secured at that Protected Rate and the rest may be dealt at the prevailing spot market rate.
A Ratio Forward makes perfect sense if:
Just tell us your:
Advantages
Disadvantages
Company ABC import goods from the US, and need to pay USD 1,000,000 in six months time to their supplier. The forward rate for six months is 1.5500.
Company ABC wants to lock in its rate for some of its exposure above the current market rate, but doesn’t want to pay a premium for this. It wants to get a Protected Rate or a Ratio Forward of 1.6000 on at least some of its requirement. Based on this, we calculate a pre-agreed ratio level. In this example, that works out at 50% (USD 500,000).
A Vanilla Option gives you the protection of a forward foreign exchange contract with the flexibility of transacting in the spot market for an upfront premium. You have the right to buy or sell a specified amount of foreign exchange at any chosen rate on any given future date.
You’re under absolutely no obligation to deal at this rate and can walk away from the deal at maturity. You can therefore transact freely in the spot market if the rate has moved in your favour.
A Vanilla Option makes perfect sense if:
Just tell us your:
Advantages
Disadvantages
Company ABC import goods from the US and needs to pay USD 1,000,000 in six months time to its supplier. The forward rate for six months is 1.5500.
Company ABC pays an upfront premium to buy a Vanilla Option that provides protection at 1.5500 (the ‘Strike Rate’). The company will never have to pay an additional margin call for the transaction.
When the deal matures in six months’ time, if the rate in the market is higher than 1.5500, the company simply deals at spot – at the more favourable rate.
A Zero-Cost Collar gives you guaranteed rate protection and exposure to favourable movements in the exchange rate. You enjoy the guaranteed protection of a specified ‘worst-case’ rate, but you can also benefit from any favourable movements in the exchange rate, up to a ‘best-case’ rate.
There’s no upfront premium for this product, but if you need rates that are better than the market rate, you’ll pay a premium.
A Zero-Cost Collar makes perfect sense if:
Just tell us your:
Advantages
Disadvantages
Company ABC import goods from the US, and needs to pay USD 1,000,000 in six months time to its supplier. The forward rate for six months is 1.5500.
The company needs to protect itself against adverse movements in the exchange rate, but also wants to benefit from any favourable exchange rate moves as this would help improve its profit margins. However, it’s reluctant to pay a premium for this benefit.
The company tells us it’s prepared to accept a worst-case rate (or ‘protected rate’) of 1.5300. Based on this, we allow it to participate in any favourable moves up to 1.6000 (the best-case rate).
When the Zero-Cost Collar expires, one of three things could happen:
Scenario 1
The GBP/USD rate weakens and at maturity the exchange rate is 1.4300. The company exercises the right to buy USD 1,000,000 at 1.5300.
Scenario 2
The GBP/USD rate strengthens and at maturity the exchange rate is 1.6600. In this case, the company will have to buy dollars at 1.6000, the agreed best rate that is still much better than the market rate at the time of dealing.
Scenario 3
The GBP/USD rate at maturity is between the best-case and worst-case rates. That leaves the company free to buy any amount at the prevailing spot rate.
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