Currency Option Strategies

Execute a series of currency forwards at better than standard exchange rates.

A team of experienced professionals at your service

Execute transactions over the telephone – in any currency offered by KB

Benefit from better exchange rates with a correctly selected strategy

Monitor your transactions with confirmations

USEFUL INFORMATION

Currency Option Strategies provide you with an opportunity to execute, with zero initial cost, a series of currency transactions at better than standard exchange rates
For sole traders and legal entities – both Czech and foreign - that wish to hedge their currency risks

Ratchet

Resulting right or obligation of the client to exchange standard or increased transaction nominal as well as the final exchange rate depend on the reference spot exchange rate movement, specifically whether or not predefined barriers are reached
Payoff modifications:
- In case the spot rate does not reach Level 1 by the Expiration Date of the given reference period, a client may sell the nominal at the Forward Rate 1 that is not favourable (for such client)
- In case the spot rate reaches Level 1 but not Level 2 by the Expiration Date of the given reference period, a client may sell the nominal at the favourable Forward Rate 2
- In case the spot rate reaches Level 2 but not Level 3 by the Expiration Date of the given reference period, a client may sell the nominal at the highly unfavourable Forward Rate 3
- In case the spot rate reaches Level 4, a client must sell the increased nominal at the Forward Rate 1 on Expiration Dates of all remaining reference periods

Extendible Structured Knock-In Forward

Target Accumulator

Client gets a better than standard exchange rate; however, if the exchange rate movement is adverse from the perspective of the strategy buyer, the exchanged notional amount is higher than for positive movement
Client does not know the exact notional amount to be exchanged by the maturity date of individual forwards
In case the target amount is accumulated, the transaction is terminated – the remaining currency forwards are not settled at all
Negative accumulation is usually not taken into account; accumulation is usually calculated as Max (forward rate – current value of the reference exchange rate; 0)
Target amount is usually limited – in case the transaction is terminated due to the target amount being accumulated, the forward rate for the last exchange shall be adjusted to ensure the accumulated amount remains below the target amount

First fixing:

Fixing date: 29 October, settlement date: 31 October
Current EUR/CZK spot rate as of the fixing date: 27.720
- Client sells EUR 1 mil million/CZK at 28.220
- Accumulated amount at CZK 500,000

Second fixing:

Fixing date: 28 November, settlement date: 30 November
Current EUR/CZK spot rate as of the fixing date: 28.000
- Client sells EUR 2 mil million/CZK at 27.820
- Accumulated amount remains at CZK 500,000

Third fixing:

Fixing date: 19 December, settlement date: 21 December
Current EUR/CZK spot rate as of the fixing date: 26.820
- Accumulated amount now exceeds CZK 1 million by CZK 100,000 – this results in the transaction termination and no other exchanges will take place
- Forward rate of the last exchange is adjusted to ensure the accumulated amount remains below the target amount of CZK 1 million – i.e. a client sells EUR 1 million/CZK at the adjusted rate of 27.320 (= 27.420 – 0.100)

Potential profit or loss from transactions denominated in foreign currencies depends on foreign exchange rate fluctuations
In theory, profit/loss is not limited in any way
Depending on the selected option strategy, clients may not know the final exchange rate, exchanged nominal or whether or not the transaction would in fact be executed until the maturity date
Although a client receives better than standard exchange rates, individual transactions may be rolled over automatically when the development of exchange rates is negative from the perspective of the strategy buyer (currency sold by the buyer appreciates). This results in longer maturity and higher notional (for leveraged strategies) than for positive development