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Interest Risk

  • Forward Rate Agreement

    An FRA transaction(Forward Rate Agreement) is a contract between the bank and the client, the subject of which is an agreement on the future interest rate for a particular deposit or loan within a certain agreed future period of time, whereas no actual provision of a loan or acceptance of a term deposit occurs between the contracting parties, but only exchange of the difference between the interest agreed in terms of the FRA transaction (“FRA rate”) and the current market interest listed on the financial market in the agreed future period of time for the term deposit or loan, which precisely corresponds to the conditions of the FRA transaction.

  • Interest Swap

    Interest rate swap is an agreement on exchange of cash flows denominated in one currency, which are derived from a fixed or variable basis. Party A undertakes to pay party B the agreed fixed interest on the agreed principal for the agreed period on the agreed maturity dates and at the same time, party B undertakes to pay party A the agreed variable interest on the agreed principal for the agreed period on the agreed maturity dates.

  • Interest Option

    In general, an option represents the right to purchase or sell a defined instrument on the agreed date. In the case of an interest rate option, the instrument is understood to mean exchange of payments from the agreed fixed rate for payments from the determined reference interest rate. Interest rate option allows the buyer to hedge his or her position against increase or decrease of interest rates.

  • Cross Currency Swap

    Cross Currency Swap is an agreement on exchange of principals of two currencies and the interest costs relating to these. Party A undertakes to purchase funds in currency 1 from party B for a certain amount of funds in currency 2, on a fixed date and also undertakes to sell back the same amount of funds in currency 1 for a certain amount of funds in currency 2 at the same exchange rate and on a later fixed date, no later however than within one year from conclusion of the transaction. Over the course of the transaction, the parties mutually pay interest on the currencies, which they purchased from each other at the start of the transaction.

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