[Fegu]

Key product features

• Full protection at a known worst-case rate.
• Opportunity to transact at Enhanced Rate.
• Benefit of favourable spot moves is limited to the Enhanced Rate.
• Zero premium, break costs may apply.

Who does this suit?

• You need to sell EUR and wishes to achieve an improved EURUSD rate but maintain a known worst-case rate.
• Ideal for your satisfied with a less favourable worst-case rate in exchange for the opportunity to transact at an improved rate over the outright forward.
• You are not in a position to pay premium.

Example trade profile


Effective rate at each expiry


Product description/scenario

• The Protected Accrual Forward is an alternative to the traditional Forward hedge. It provides protection at a rate worse than the outright forward rate, while offering the opportunity to transact at the Enhanced Rate if spot is at or above the Protected Rate at each expiry date.

Payoff description

• If spot at any given expiry is:
– At or above the Protected Rate (1.2400), you sell EUR 1mio at the Enhanced Rate (1.3200) for that expiry.
– Below the Protected Rate (1.2400), you sell EUR 1mio at the Protected Rate (1.2400) for that expiry

Variations

• Extension:
– Improve the Enhanced Rate by extending the tenor of the trade if the Enhanced Rate is worse than spot on a predefined date.

• Satisfaction Accrual Forward:
– Deal at the Enhanced Rate if a knock-out level is not reached. If the knock-out level is reached, you are left with Vanilla Option protection, i.e. a known worst-case rate and full participation in any favourable spot movements.

• Ratio:
– Improve the Enhanced Rate by introducing leverage, i.e. a larger notional is transacted when the Enhanced Rate is worse than the spot rate.