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13
Nov

Amortizing Forward

An Amortizing forward is based on similar conditions to those of a standard forward, and can be used in cases when it is difficult to define the exact settlement date and the volume of the individual transactions in advance. During the agreed period it is possible at any time to exchange currency at the agreed exchange rate, however the individual conversions need not be specified in advance, and can take place on any business day in the given period and at any amount up to the total value of the amortizing forward.
 
Conditions for securing an amortizing forward:
 
  • Signing of a Framework agreement about payment and investment services.
  • You are legally obliged to have LEI number.
  • Deposit of cash collateral or getting a Dealing limit.
  • Minimum amount per transaction is EUR 30,000 or equivalent in another currency.

EXAMPLE

 
Exporter:
 
This client expects payments from international companies that have up to 12 months, i.e. by 31 December to pay EUR 100,000 for goods purchased. They agreed on a forward contract which gives the client certainty ahead of time on the exchange rate for which all currency conversions will be done by December 31 (forward exchange rate).
 
date payment received31 March30 June30 September31 December
agreed rate27.6827.6827.6827.68
actual rate27.8827.7827.5827.48
payment received25.00025.00025.00025.000
difference [in CZK]-5.000-2.5002.5005.000
 
 
All redemption during the duration of the amortization forward is for the originally agreed forward rate and no additional costs.
 
In the event that this product has caught your interest and you think you would like to use it as a suitable instrument for limiting risks associated with your business activities, don’t hesitate to contact the Currency Hedger dealing centre.
 
When closing derivative transactions, the client undertakes selected types of risks (market – currency and interest, counterparty risk, liquidity risk, and leverage). The risks always depend on the purpose and method of using the derivative transactions. Before signing the General Agreement and concluding the trade, or at any time upon request, the traders will be happy to explain the different types of risks both verbally and in writing.
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