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Infoline: 800 900 900

IR linked IRS

An IR 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 fluctuation for a period longer than one year. This is an agreement for the exchange of interest rate payments in a single currency (the exchange of a fixed interest rate for a variable one). The „fixed“ rate typically paid by the Client is variable and dependent on the selected reference interest rate. The variable interest rate is typically based on the same reference interest rate (6-month PRIBOR). As with an IRS, the buyer of an IR linked IRS insures against the rise of interest rates, the seller against their decline. An IR 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 IR linked IRS is 30 years. The minimum maturity is 1 year.
  • IR 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 IR linked IRS contract and the market value at the contract maturity date (PRIBOR reference rate).

Conditions

Conclusion of a TMA contract (Treasury Master Agreement)

 

IR linked IRS

  • An IR 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). If the monitored reference rate meets the conditions for the given interest period, the client pays the minimum rate. If this rate however does not meet the conditions, the client pays the maximum rate.
  • Example : In the given interest period the client pays a rate of 3% in the event that 2 working days before the start of the given interest period the value of 1M PRIBOR is within the range of 3.50 – 4.20. If this is not the case, the client will pay a rate of 5% for the given interest period.

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