Foreign exchange products are offered to both the banks customer base and the interbank market.
Foreign exchange Spot transactions
- Spot trading involves the buying and selling of currencies at specified exchange rates for settlement in two working days.
- In spot trading, the Deal date is the date when the deal is done while the Value date refers to the date of settlement of a transaction.
- Prices are quoted two way i.e. bid and offer
- Some transactions can be settled on the deal date or the next day if agreed between two counterparties
Forward Exchange Contracts (FEC)
Forward Exchange Contract is a contract to buy or sell foreign exchange for settlement on a specified date in the future other than spot at an exchange rate agreed on deal date.
Forward Exchange contracts provide customers the opportunity to hedge themselves against future adverse exchange rate movements. In the same regard, the Bank shall hedge against unfavorable exchange rate movements upon entering into FECs on the deal date by ensuring that they are priced correctly using a forward calculator or by covering them back-to-back.
The Treasury function shall monitor the forward market and advise ALCO on the appropriate pricing, holdings, and commitments.
Foreign Exchange Swaps
A swap transaction involves buying or selling one currency spot against an equal but opposite buy or sell foreign exchange for forward value. Swaps are mostly used for hedging and liquidity management.
The bank shall trade in these products within the set limits and guidelines and any other new products will be approved by board ALCO.
Futures, Forward Rate agreements and options
These are interest rate derivatives used to hedge against interest rate risk. They are used in highly volatile and active markets and require extra caution when being used otherwise can be disastrous. Management must approve any of such transactions before they are implemented by Treasury.