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Foreign Exchange & Derivatives

Foreign Currency Notes

Forward
Locking in foreign exchange rates for settlement at a future date.
	Uses:
		Exporters and sell USD vs. PHP Forwards to protect against a appreciating PHP
		Importers can buy USD vs. PHP Forwards to protect against a depreciating PHP

Spot

FX Swap
An FX swap is a transaction between two parties to exchange a set of currencies on spot date and re-exchange the currencies on a future date.
	Uses:
		USD holders who need PHP can generate PHP liquidity by entering into an FX Swap agreement without any FX risk. USD holders will sell USD spot and hedge the FX exposure by simultaneously buying USD forward.

Third Currency Demand Draft (Selected)

Non-Deliverable Forwards (NDF)
Locking in foreign exchange rates for settlement at a future date. Key difference between an NDF and a deliverable FWD is that on maturity, there is no exchange of principal amounts. The transaction is “net settled.” (i.e. only the difference between the pre-agreed NDF rate and the “fixing rate” is settled).
	Uses:
		Exporters and sell USD vs. PHP Forwards to protect against a appreciating PHP
		Importers can buy USD vs. PHP Forwards to protect against a depreciating PHP

FX Options
Gives the options buyer the right but not the obligation to buy or sell FX at a specific exchange rate, for a specific amount, at some point in the future.
	Uses:
		Exporters can buy PUT options to hedge against a strengthening PhP
		Importers can buy CALL options to hedge against a weakening PhP.

Cross-currency Swap (CCS)
Is a transaction wherein one party agrees to pay a sequence of FIXED rate interest payments in one currency in exchange for receiving a sequence of FLOATING rate interest payments in another currency.
	Uses:
		Clients who are exposed to 2 different interest rates in 2 different currencies may change their pay-off profiles by entering into a CCS agreement. The CCS agreement may be structured to meet the specific needs of the client.

Interest Rate Swap (IRS)
Is a transaction wherein one party agrees to pay a sequence of FIXED rate interest payments in exchange for receiving a sequence of FLOATING rate interest payments over a period of time (e.g. 1 to 10 years).
	Uses:
		Clients with floating rate loan payments can protect themselves against rising interest rates by entering into an IRS to change their loan payment profile from floating rate to fixed rate.