RSS Feeds | Go to content of the page Go to main navigation Contacts KB Branches and ATMs Careers Financial Markets Česky Infoline: 800 521 521 We will call you

Forward Accumulator with Knock-Out Barrier

Possibility of implementing a currency forward for a more advantageous exchange rate than usual.

A Forward Accumulator with Knock-Out Barrier is intended for:

  • natural persons – entrepreneurs
  • corporate entities
  • Czech nationals and foreigners
  • clients who demand security for exchange rate risk resulting from possible negative development for the client of a specific currency pair
  • clients who speculate on the development of a specific currency pair

Characteristics of a Forward Accumulator with Knock-Out Barrier:

  • A Forward Accumulator with Knock-Out Barrier allows the client to implement at zero initial cost a currency forward for a more advantageous exchange rate than usual.
  • On the other hand, the client does not know the precise nominal, which will be exchanged, until the maturity date of the Forward Accumulator.
  • The resulting nominal depends on:
    • the number of periods, in which the reference exchange rate was fixed at a value lower  than the value of the Step, before (if at all) fixing reached the value of the Knock-Out barrier
    • the number of periods, in which the reference exchange rate was fixed at a value higher than or equal to the Step, before (if at all) fixing reached the value of the Knock-Out barrier, and
    • the agreed multiplier, which will be used to increase/accumulate the aliquot (for the given period) part of the nominal
  • If the development of the exchange rate is inauspicious from the point of view of the buyer of the product (the currency, which the buyer is selling, strengthens), then the aliquot nominal amount is increased x-times more than if the development is auspicious.

Risk

  • The potential for profit or loss from transactions denominated in foreign currency is influenced by the movement of foreign exchange rates.
  • Theoretically, neither profit nor loss is limited in any way.
  • In the case of the Forward Accumulator, the client does not know the nominal which will be exchanged until the maturity date.
  • The client does receive a more advantageous exchange rate than is usual; however, if the development of the foreign exchange rate is inauspicious from the point of view of the buyer of the product (the currency, which the buyer is selling, strengthens), then the nominal amount is increased x-times more than if the development is auspicious.
  • Accumulation of nominal amounts is terminated in the case of the Forward Accumulator with Knock-Out barrier, if fixing of the reference exchange rate reaches the value of the Knock-Out barrier.
Example
  • This example shows the alternative of the Forward Accumulator with Knock-Out Barrier where Step=the Forward Accumulator rate.
  • A client (EUR exporter) sells EUR/buys CZK. Settlement of the transaction is one year from the date it is concluded.
  • The current market annual forward rate is 29.965. The client gains a more advantageous Forward Accumulator rate of 30.000.
  • The initial nominal of the transaction is EUR 9,500,000.
  • The multiplier is 2 on the fixation dates fixing >= Step.
  • Fixation of the exchange rate takes place on a daily basis, only on business days (not at weekends and on public holidays), i.e. 250 fixations. The aliquot nominal amount is thus 9,500,000/250 = EUR 38,000.
  • Let us assume that the barrier was breached after 70 periods. During this time, fixing was found 30 times below the value of the Step.
  • The accumulated nominal in EUR is thus (30 x 1 x 38,000) + (40 x 2 x 38,000). The client exchanges EUR 4,180,000.

Advantages of a Forward Accumulator with Knock-Out Barrier concluded at Komerční banka:

  • zero initial costs
  • execution of exchange forwards at a substantially better rate
  • Forward Accumulator with Knock-Out Barrier can be arranged in all currencies stated on the Komerční banka exchange list
  • the transaction is always concluded by telephone with a Client transaction dealer
  • the client receives confirmation of the concluded transaction containing the agreed parameters of the transaction
  • at Komerční banka, a team of experienced professionals is at your disposal; they will propose an optimum strategy and are able to respond flexibly to developments on the market

The Forward Accumulator with Knock-Out Barrier allows you to:

  • appreciate your available funds highly advantageously with zero initial costs

How to get the Forward Accumulator with Knock-Out barrier?

  • contact your relationship manager
  • call the toll-free KB Info line on 800 521 521

Searching

Main navigation