Bonds and Bank Guarantees are used to secure a wide range of obligations such as the warranty on goods and services, refund of an advance payment, to support a tender or simply in payment of goods.
A guarantee is a payment instrument that is tailored specifically to your individual contract, but which is a payment obligation independent of the contract itself and usually drawn through a simple document evidencing requirement of payment.
Standby Letters of Credit (SBLC)
Standby letters of credit are used widely in place of Guarantees, but are in a standard Letter of Credit format and usually governed by the Uniform Customs and Practice for Documentary Credits (UCP). In common with Guarantees, utlilisation of a Standby Letter of Credit is only intended in the event of non-performance of specified contractual obligations.
*Whether you are a beneficiary of or seeking to have a Guarantee or Standby Letter of Credit issued on your behalf please contact Bank of Ireland to discuss the various options and terms available to you.
Bank of Ireland Global Markets offers a comprehensive range of foreign exchange services, including the operation of foreign currency account. We currently offer accounts in all major currencies including Sterling, US Dollars, Australian Dollar, Canadian Dollar, Swiss Franc and Polish Zloty.
A wide range of deposit options on offer including call, fixed deposits and long-term offerings as well as providing tailored solutions from competitively priced and innovative deposit products to more complex investment products.
FX Forward is a binding contract between two parties to exchange an amount of one currency for another, at a fixed exchange rate, on a date in the future. Their key objective is to deliver certainty of cost and therefore protecting your operating margins from adverse currency movement.
An FX swap agreement is a contract, in which one party simultaneously borrows one currency and lends another currency to a second party. The repayment obligation is used as collateral and the amount of repayment is fixed at the FX forward rate.
A vanilla option is a financial instrument that gives the holder the right, but not the obligation, to buy or sell an underlying currency at a predetermined price within a given timeframe.
Non Deliverable Forward is an outright forward contract where there is no exchange of actual nominals when a trade begins or settles.
When a trade matures it is marked to market against the Fixed Rate as issued daily by the Central Bank of the specific currency.
A collar structure provides a secured protected rate, while still allowing beneficial moves to a pre-determined level, which is the best-case scenario. If the spot rate at expiry is more favourable than the best-case rate then the holder of the collar is obligated to transact at the best-case rate. If the rate is in-between the best-case rate and the protected rate the holder of the collar can transact at the spot rate. If the spot rate at expiry is less favourable than the protected rate then the holder of the collar can transact at the protected rate. Collars are generally structured as zero-cost premium products.
A participating forward structure provides a secured protected rate, while still allowing beneficial moves on a predetermined portion of the amount hedged. If the spot rate at expiry is more favourable than the protected rate then the holder of the participating forward is only obligated to transact a predetermined proportion of the hedged amount at the protected rate and is free to transact the remainder at the spot rate. Participating forwards are generally structured as zero-cost premium products.
A forward extra structure provides a secured protected rate, while still allowing beneficial moves up to a pre-determined trigger level. If the trigger level is met or exceeded at any time during the life of the trade, the holder of the forward extra is obliged to deal at the protected rate. If the rate on expiry is in-between the trigger level and protected rate, the holder of the forward extra can transact at the spot rate. If the spot rate at expiry is less favourable than the protected rate the holder of the forward extra can transact at the protected rate. Forward extras are generally structured as zero-cost premium products.
An Average Rate Forward allows the buyer to lock in forward points and a spot rate (a forward hedge “Strike” rate) today, in a similar manner to a conventional forward, but reduces the volatility of the payout, as the final settlement is calculated based on the average spot rates observed over an agreed period (the “Average” rate) not simply the final spot price. The Average rate is calculated using daily spot rates and can be observed daily, weekly, monthly or quarterly depending on the buyer’s preference. When the Average rate is calculated it is compared to the Strike rate and this will determine the payout at expiry.
A type of option in which the strike price is based on an average of the spot rate over a period of time. The dates used to calculate the average strike price cover the life of the option, and are referred to as the “fixings”. When the expiration date of the average strike option is reached, the option is considered in the money if the spot rate is higher than the average strike.
An interest rate swap is an agreement between two counterparties in which one stream of future interest payments is exchanged for another based on a specified principal amount. Interest rate swaps usually involve the exchange of a fixed interest rate for a floating rate, or vice versa, to reduce or increase exposure to fluctuations in interest rates.
An interest rate cap is a derivative in which the buyer receives payments at the end of each period in which the interest rate exceeds the agreed strike price. They allow the buyer of the Cap to participate in rates moving lower while guaranteeing a maximum rate. They involve the payment of a premium to achieve this.
The cap rate is set above the floor rate. The objective of the buyer of a collar is to protect against rising interest rates (while agreeing to give up some of the benefit from lower interest rates). The purchase of the cap protects against rising rates while the sale of the floor generates premium income. Watch Video
Swaptions are helpful in managing possible interest rate risk occurring at some time in the future. An Interest Rate Swaption gives you the right (but with no obligation) to enter into an Interest Rate Swap at an agreed interest rate on a set date in the future.
