• Foreign Exchange Swap

    A combination of a currency spot and a currency forward.

Hedging

Protect yourself against interest rate risk.

Many currencies

Transactions can be closed in all currencies shown in KB Exchange List.

Individually

Our team of dealers is available on the phone.

Confirmation

You can review parameters of each trade afterwards.

Why KB?

Trade anywhere

Contact our dealers on telephone from wherever you are.

Trade professionally

A team of KB specialists will propose suitable hedging strategy and assist you in the implementation.

Get assistance

Contact the toll-free KB Info Line at 800 521 521 anytime.

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Intended for

Individuals and legal entities, including municipalities – domiciled in the Czech Republic and abroad.

Product purpose

Hedge interest rate risk associated with the development of given interest rates.

About Foreign exchange Swap

  • Foreign exchange Swap (also known as FX Swap) is based on a combination of a FX spot and FX forward transaction
  • The FX swap is a simultaneous sale of one currency for another, with settlement no later than on the spot value date and buyback/resale with settlement on the forward value date
  • Both transactions are concluded at the same time

You might also like to know

  • FX swap may also be used in a situation when client hedged FX exposure by FX forward, but is unable to settle the payment on the maturity date because incoming receipt is delayed. The spot leg of the FX swap will deliver the currency amount required for the settlement of the original FX forward and forward leg will extend the protection

Important information for you

  • Minimum amount for a single transaction is USD 20,000  or foreign currency equivalent

Risks

  • Potential profit or loss of transactions arises from fluctuation of interest rates of currencies of the FX swap

Example of risk

Please review our model transaction:

  • Client enters into the FX swap with 1 year settlement of forward leg
    • Let´s assume that that 1Y EUR interest rate is 0,5% and 1Y CZK interest rate is also 0,5%
    • Client buys EUR 100.000 at spot rate EUR/CZK 27,050
    • Client sells EUR 100.000 at forward rate EUR/CZK 27,050
  • Client is in this operation exposed to the interest rate risk
    • Initially the interest earned on EUR 100.000 would be EUR 500 (100.000 x 0,5%) and the interest on CZK 2.705.000 would also be EUR 500 (2.705.000 x 0,5% / 27,050)
    • Let´s assume that right after the deal is concluded CZK interest rate rise from 0,5% to 1,5%
    • In such case interest on 1Y EUR 100.000 is still EUR 500 but interest on 1Y CZK 2.705.000 is EUR 1.500 (2.705.000 x 1,5% / 27,050)
    • In one year client will therefore have EUR 1.000 (CZK 27 050) less then he would otherwise had without entering into FX Swap
  • However, if the transaction was executed as hedging, the client views the loss as the cost of hedging. Hedging protects clients from losses from significant interest rate fluctuations causing serious financial problems