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Infoline: 800 900 900

FX linked IRS

An FX linked IRS is a balance-neutral operation consisting of an interest rate agreement for future periods. The operation secures against the risk of interest rate fluctuations for a period of more than one year. This is an agreement for swapping interest payments in a single currency (the exchange of a fixed rate for a variable one). The „fixed“ rate typically paid by the Client is variable with respect to the reference rate of the selected currency pair. The variable interest rate is typically derived from the reference interest rate (6-month PRIBOR). As with an IRS, the buyer of an FX linked IRS secures against the rise of interest rates, the seller against their decline. An FX linked IRS applies to a series of specific interest periods.

Advantages

  • Speed of communication
    • Trades may be made through direct telephone communication with employees of the Treasury section.
  • The maximum maturity of an FX linked IRS is 30 years. The minimum maturity is 1 year.
  • FX linked IRS operations are analogous to standard deposits or loans, with the added feature of an interest rate agreement for a future period.
  • No fees
  • Better interest rate than for a classic IRS
  • Comfort
    • Communication by telephone
    • There is no exchange of principal, only settlement of the difference between the negotiated price of the FX linked IRS contract and the market value at the contract maturity date (PRIBOR reference rate).

Conditions

Conclusion of a TMA contract (Treasury Master Agreement)

 

Knock out FX linked IRS

  • A Knock out FX linked IRS is again an agreement for the exchange of interest rate payments in two currencies (the exchange of a fixed interest rate for a variable one). Along with the condition of the „fixed“ rate paid by the Client which is dependent on the exchange rate of the selected currency pair, there is also the American FX barrier, the breaking of which will revert the product to a classic IRS.
  • Example :
    • The Client pays a rate of 3% + FX indexing up to the moment when the EUR/CZK exchange rate breaks 25. Since strengthening of the CZK is anticipated, it is likely that this barrier will be broken and from that moment the Client will not pay any FX indexing. In the case of a normal IRS the client would pay 4%.

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