FX Forward contract is an arrangement between bank and customer on execution of Foreign exchange transaction with future value date, at pre-agreed exchange rate and amount. Execution of FX forward transaction is obligatory.
Who may use FX forward?
Companies, which have loans in foreign currency and revenues in home currency (GEL):
- Are keen to insure principal and interest amount in foreign currency against foreign exchange risk.
Importer and Exporter companies, which:
- Are keen to insure money payable and/or receivable in foreign currency against currency risks.
e.g: Georgian company imports goods from Europe and has expected future payments in EUR, although proceeds from sales are received in GEL. Goods will be sold during the following 2 months and received cash in GEL has to be converted to EUR so as to make the following payments in EUR
Company decides to hedge its EUR exposure and enters the FX forward contract on EUR/GEL currency pair, for the time period of 2 months.
- Transaction amount - 500,000
- Current exchange rate: 1 EUR = 3.25 GEL
- Forward margin - 10% annual
- Forward period - 2 months
- Forward rate: 1 EUR = 3.2676 USD, calculating method: (3.25+3.25*10%/12*2)
NON-DELIVERABLE FORWARD (NDF)
- Companies, who want to mitigate exchange rate risk, although may not actually require to execute the exchange transaction
- Companies, who have obligations linked to future exchange rate
Foreign exchange Swap
Foreign exchange Swap agreement is an arrangement between bank and a customer on simultaneous selling and buying back foreign exchange currency with different value dates, at pre-agreed Foreign exchange rates. Execution of Foreign exchange Swap transaction with pre-agreed terms is obligatory.
Who and in what case shall use Foreign exchange Forward?
- Companies, which have funds in foreign currency, but have to make settlements with partners or budget in home currency (GEL), while prefer to keep money in foreign currency.
- Companies, who desire to swap temporarily, their cash in foreign currency to home currency (GEL), with existing market rate and return cash in foreign currency at pre-agreed Foreign exchange rate.
Example: Georgian company, which imports goods from Europe and makes a transfer to its supplier in foreign currency, though needs home currency (GEL) for local transfers to the budget.
In order to avoid USD/GEL currency pair impairment risk, customer has an opportunity to enter into Foreign exchange Swap agreement and fix the future exchange rate.
|Contract Period||Up to 1 year|
|Currency Pairs*||Contract can be done in all major currencies|
|Minimum amount of transaction||50,000 USD or equivalent|
|Reservation amount||10% of the total value of transaction should be reserved on customer account, which will be adjusted at final settlement of the deal|
|Service fee||Service fee is considered in a foreign exchange forward rate|
|Arrangement||Directly with TBC Bank Treasury|
*Non-Deliverable Forward Contract can be done only for USD/GEL currency pair.