American FX forward

• Instrument for hedging currency risk resulting from potential adverse development of specific currency pairs
• Modification of the FX forward that allows continuous drawing on agreed nominal based on client’s needs
• Intended for individuals and legal entities, both Czech and foreign residents
• Available in any currency shown in the KB currency table
• Transactions executed by telephone with our dealers
• Receive notification of agreed transaction parameters following each transaction
• Counterparties agree and approve standard parameters – currency pair, nominal, and settlement date
• American FX forward buyer may also request partial exercise anytime between the initial date and the settlement date  
• If a buyer does not exchange the entire nominal prior to the American FX Forward settlement date, the remaining nominal is automatically settled on such date
• Consult the Markets in Financial Instruments Directive
• Receive current information about financial market developments

• Potential profit or loss from transactions denominated in foreign currencies is affected by exchange rate fluctuations
• In theory, profits or losses are not limited in any way

Example

• Client and its bank enter into an American FX Forward with client selling EUR 1 mil to buy CZK
• Agreed exchange rate: 27.950
• Client undertook two exchange transactions – EUR 500,000 each
  • As of the first settlement, the spot exchange rate amounted to 27.900
    • Client hedged its currency risk and also generated profit of CZK 25,000
  • As of the second settlement, the spot exchange rate amounted to 28.000
    • Client incurred a loss of CZK 25,000; however, this loss represents hedging cost, provided the transaction was used as hedging
    • Hedging protects clients from significant exchange rate fluctuations that could result in substantial financial problems