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Individuals and legal entities, domiciled both in the Czech Republic and abroad.
Cross Currency Swaps are used to hedge movements in interest rates and currency exchange rates.
About Cross Currency Swap (CCS)
- Agreement to exchange principal amounts denominated in two different currencies and associated interest payments
- At the beginning parties exchange agreed principal amount at fixed exchange rate. This usually happens at a pre–agreed date shortly after the trade date.
- The principal amounts will be exchanged again at the same exchange rate on the maturity date of the swap, no later than one year from the trade date
- Over the duration of the swap contract, both Parties exchange interest payments at regular intervals (interest periods). Interest payments are calculated from the notional amounts in their respective currencies.
- The fixing of variable rate, and its comparison to fixed rate (for fixed to float CCS), or the fixing of two variable rates, and their comparison (for float to float CCS), takes place two business days before the beginning of individual interest–bearing periods
- Interest payments are settled at the end of each interest period
You might also like to know
Cross currency swap cancellation:
- Counterparties may agree on swap cancellation in the course of the contract term
- When cross currency swap is cancelled all future liabilities are cancelled; interest payments made prior to swap cancellation are not refunded
- In case of cross currency swap cancellation, its market value is settled by means of a one–off payment
- The one–off payment is a price at which both parties are willing to withdraw from the transaction
- Party in a disadvantageous position pays the agreed amount on the spot value to the other party and the transaction is cancelled
- Any accrued interest payments outstanding on the swap cancellation date are included in the swap market price
Important information for you
- Profit or loss from interest rate transactions is affected by interest rate fluctuations
A possible loss is caused by the fact that the client finds himself/herself, within the given reference period, in the disadvantageous position, meaning the payment paid by him/her is higher that the payment paid by the bank
- In this case, the client pays the difference of these two payments to the bank
- Nevertheless, if the deal was concluded as hedging, the client considers this loss as a cost for hedging
- The hedging protects the client against such a significant change of interest rates that could cause him/her serious financial problems