Cross currency swap

An agreement to exchange principals of two currencies and associated interest cost

Avoiding the risk associated with fluctuation
interest rates

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Agreement to exchange principals in two currencies and associated interest payments
It is intended for individuals and legal entities – both Czech and foreign residents
One party (A) agrees to purchase financial funds in currency 1 from another party (B) for certain amount in currency 2 – at a fixed date
At the same time, party A agrees to resell the same amount in currency 1 for certain amount in currency 2, at the same exchange rate and at a fixed later date
During the contract term, both parties exchange interest payments on currencies they initially purchased from each other
Floating interest rates are fixed and compared to a fixed rate (for fixed to float CCS) or two floating rates are fixed (for float to float CCS) two business days prior to the start of individual interest periods
Transaction is settled at the end of interest periods
Consult the Markets in Financial Instruments Directive and receive current information

Cross Currency Swap cancellation

During the contract term, counterparties may agree on CCS cancellation.

When cross currency swap is cancelled, its market value is settled by means of a one–off settlement, the whole transaction is cancelled, together with all future liabilities – interest payments made prior to CCS cancellation are not refunded
As of the CCS cancellation date, parties agree on a price at which they are willing to withdraw from the transaction
Losing party pays the agreed amount (CCS market price) to the other party at the spot value and the transaction is cancelled
In case CCS is not cancelled as of an interest payment settlement date, any unsettled difference of interest rate income and expense from the cancelled swap settled to date shall be included in the swap market price

Potential profit or loss from interest rate transactions is affected by interest rate fluctuations
Losses may be incurred due to the fact that clients find themselves in a disadvantageous position during individual reference periods – i.e. swap payments made by them exceed payments made by the bank

In this case, clients pay a difference of the two payments to the bank
For clients, this loss represents hedging cost, provided the transaction was used as hedging
Hedging protects clients from significant interest rate fluctuations that could result in substantial financial problems

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