Key product features
• Full protection at a known rate.
• Ability to participate in favourable spot moves up to a Limit Rate.
• Obligation to deal at the Protected Rate if spot ever trades at or beyond the Limit Rate.
• More attractive Protected and Limit rates than those available with a Collar.
• Zero premium, break costs may apply.
Who does this suit?
• You need to sell EUR and wishes to participate in EURUSD appreciation but maintain a known worst-case rate.
• Ideal for those who are satisfied with a modest Protected Rate but would like the chance to improve upon this.
• You are not in a position to pay premium.
Example trade profile
Effective exchange rate at expiry
Product description/scenario
• The Forward Plus is an alternative to the traditional Forward hedge. It provides protection at a rate slightly worse than the outright forward rate, while allowing 100% participation in favourable spot movements up to the specified Limit Rate.
• If spot moves beyond the Limit Rate, the client will be obliged to trade at the Protected Rate, which may be less favourable at that time.
Payoff description
• You are protected to sell EUR at a worst-case rate equal to the Protected Rate (1.2850), but if EURUSD spot is at or above this level on expiry (and has not traded at or above the Limit Rate (1.4000) at any time) there is no obligation and you are free to deal any amount of EUR at the prevailing (better) spot rate.
• If EURUSD spot has traded at or above the Limit Rate (1.4000) at any time, you will be obliged to sell EUR at the Protected Rate (1.2850).
Variations
• European style:
– Obligation to trade at the Protected Rate when it is disadvantageous only exists if spot is at or beyond the Limit Rate on expiry.
• Discrete style:
– Obligation to trade at the Protected Rate only exists if spot is beyond the Limit Rate at predetermined discrete points in time throughout the life of the option.
Forex Product - Forward Plus
Linear Mode
