FX Forward Contract
You can hedge your future FX exposure by entering into a FX forward contract.
What is a FX Forward Contract?
FX Forward is a binding contract between the Bank and the Customer in exchange a specified amount of two currencies at a predetermined rate for settlement on a specified future date.
How does FX Forward work?
To establish a FX Forward Contract, you need to select the Sell Currency, Buy Currency, contract tenor, contract amount, and agree the forward rate with the Bank. Your deposit in Sell Currency, whether is frozen in your settlement account or held as a time deposit with the Bank, will be used for settlement purpose until maturity of the FX Forward.
On Maturity Date, the Bank will exercise the FX Forward to convert your deposit into the Buy Currency at the agreed forward rate.
Return & Risk Comparison of FX Forward
Table 1 - Illustrative Example
| Sell Currency | USD |
| Buy Currencey | AUD |
| Trade Date | 11 Jun, 20xx |
| Maturity Date | 11 Sep, 20xx |
| Tenor | 3 months |
| Trade Date Spot Rate | AUD/USD 1.0205 |
| Forward Rate | AUD/USD 1.0122 |
| Customer Sell Amount | USD 1,012,200 |
| Customer
Buy Amount (Contract Amount) |
AUD 1,000,000 |
Table 2 - Return Analysis
| Scenarios | Maturity Spot Rate | Forward Rate | Maturity Amount (USD Equivalent^) |
Net Gain / (Loss) |
Absolute Return Rate # |
|---|---|---|---|---|---|
| Scenario
1- Gain scenario AUD strengthens against USD or remains unchanged |
1.0250 | 1.0122 | USD1,025,000 | USD12,800 | Gain 1.264% |
| Scenario 2-
Breakeven AUD weakens against USD |
1.0122 | 1.0122 | USD1,012,200 | USD 0 | Breakeven |
| Scenario
3 - Worst case scenario AUD becomes valueless |
–– | 1.0122 | USD 0 | (USD1,012,200) | Total Loss |
Return Analysis Diagram
The above diagram is for reference only and the scale of the diagram is not in proportion. The actual performance of the product may differ from the examples shown.
Note:
^
USD equivalent = Buy Amount (Contract Amount) x Maturity Spot Rate
# Absolute
Return Rate = Net Gain/ Loss / Customer Sell Amount x 100%
= USD 12,800/ USD1,012,200
x 100%
= 1.264%
Start your investment plan today!
Investment
Services Hotline: (852) 2526 5555
Website: www.cmbwinglungbank.com
Important Notice:
This is an investment product involving financial derivatives. The investment decision is yours but you should not invest in FX Forward unless the intermediary who sells it to you has explained to you that the product is suitable for you having regard to your financial situation, investment experience and investment objectives.
Risk Disclosure Statement:
- This is an investment product which is not principal-protected.
- The above information is for reference only and does not constitute and should not be regarded as any recommendation, offer or solicitation to purchase or sell any investment products. Investment involves risks and the price of investment products may fluctuate or even become worthless. Past record is not an indicator of future performance. Losses may be incurred rather than making a profit as a result of investment. You should carefully and independently consider whether the investment products are suitable for you in light of your investment experience, objectives, financial position and risk profile. Independent professional advice should be obtained if necessary. Please read the relevant terms and conditions together with the risk disclosure statements before making any investment decisions.
Detailed risk disclosure can refer to the following document:
NET Services Logon
