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Foreign Exchange Forward Contract provides you with the opportunity to lock in the foreign exchange rate prior to the maturity of your time deposit. You can use Foreign Exchange Forward Contract to actively capitalize the foreign currency investment opportunities or hedge against currency risks without giving up the interest from your time deposit.
Customer Benefits
- May enhance the return of your time deposit through currency trading
- Fix the buying rate of your preferred currency if you come across a favourable exchange rate
- Lock in the selling rate of your holding currency to hedge against currency fluctuations
How it Works?
- You must hold a time deposit (e.g. 100% principal protected structured investment deposit, 6 month HKD time deposit) acceptable for the purpose of entering into a Foreign Exchange Forward Contract
- Select the designated currency for conversion on maturity date
- Agree the forward rate (i.e. foreign exchange rate to be taken on the maturity date)
- On maturity date, your deposit will be automatically converted into the final designated currency at the agreed forward rate
Product Highlights
- 9 major currencies to choose from – HKD, USD, GBP, JPY, EUR, CHF, AUD, NZD and CAD
- Applicable to time deposit with remaining maturity of 6 months or below
- Minimum transaction amount is only HKD20,000 or its equivalent
- Multiple contracts for each time deposit is allowed
- No commission or handling charges
Foreign Exchange Forward Contract Return and Risk Comparison
Illustration
Scenario 1: Enhance return by currency trading
Mr. Chan sets up a 1-month HKD time deposit of HKD500,000. During the deposit period, he wants to buy AUD if AUD/HKD reaches 5.7000 and sell AUD if AUD/HKD reaches 5.8000.
| Time Deposit |
| Principal Amount |
Deposit
Value Date |
Maturity
Date |
Interest Rate (p.a.) |
Principal & Interest on Maturity Date |
| HKD500,000 |
18 April 2006 |
18 May 2006 |
2.80% |
HKD501,150.68 |
| Set up Foreign Exchange Forward Contract |
Transaction
Set Up Date |
Transaction
Details |
Agreed Forward Rate |
Maturity Date |
| 24 April 2006 |
Sell HKD501,150.68
Buy AUD87,921.17 |
5.7000 |
18 May 2006 |
| 17 May 2006 |
Sell AUD87,921.17
Buy HKD509,942.79 |
5.8000 |
18 May 2006 |
| Extra Gain : HKD509,942.79 – HKD501,150.68 = HKD8,792.11 |
Scenario 2: Lock in return through currency hedging
Mr. Lee converts HKD1,140,000 into AUD200,000 at AUD/HKD 5.7000 to set up a 1-month AUD time deposit. He plans to convert the AUD deposit back to HKD on Maturity Date.
| Time Deposit |
Principal
Amount |
Deposit Value Date |
Maturity Date |
Interest
Rate (p.a.) |
Principal & Interest on Maturity Date |
| AUD200,000 |
18 April 2006 |
18 May 2006 |
3.50% |
AUD200,583.33 |
| During Deposit Peiod |
| Without Currency Hedging |
Currency Hedging by setting up a Foreign Exchange Forward Contract |
No Foreign Exchange Forward Contract has been placed.
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On 24 April 2006, AUD/HKD Forward Rate is 5.7500, Mr. Lee sets up a Foreign Exchange Forward Contract:
Transaction Set Up Date: |
24 April 2006 |
Transaction Details: |
Sell AUD200,583.33
and
Buy HKD1,153,354.15 |
Agreed Forward Rate: |
5.7500 |
Maturity Date: |
18 May 2006 |
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| On Maturity Date, spot AUD/HKD rate equals to 5.6800 |
Mr. Lee converts AUD200,583.33
into HKD at AUD/HKD 5.6800
= (AUD200,583.33 x 5.6800)
= HKD1,139,313.31 |
Mr. Lee receives HKD1,153,354.15 |
| Earn Extra : HKD1,153,354.15 – HKD1,139,313.31 = HKD14,040.84 |
Scenario 3: Potential risk of Foreign Exchange Forward Contract
Mr. Chan sets up a 3-month HKD time deposit of HKD500,000. During the deposit period, he places a series of FX Forward Contracts to capture the investment opportunities on AUD and NZD volatility. If the foreign exchange market situation is adverse to the customer, Mr. Chan may suffer loss in this investment.
| Time Deposit |
| Principal Amount |
Deposit Value Date |
Maturity Date |
Interest Rate (p.a.) |
Principal & Interest on Maturity Date |
| HKD500,000 |
18 April 2006 |
18 July 2006 |
4.00% |
HKD504,986.30 |
| Set up Foreign Exchange Forward Contracts |
| Transaction Set Up Date |
Transaction Details |
Agreed Forward Rate |
Maturity Date |
| 24 April 2006 |
Sell HKD504,986.30
Buy AUD88,594.09 |
5.7000 |
18 July 2006 |
| 3 May 2006 |
Sell AUD88,594.09
Buy USD66,002.60 |
0.7450 |
18 July 2006 |
| 10 May 2006 |
Sell USD66,002.60
Buy NZD108,200.98 |
0.6100 |
18 July 2006 |
| 17 July 2006 |
Sell NZD108,200.98
Buy HKD497,724.51 |
4.6000 |
18 July 2006 |
| (Loss): HKD 497,724.51 – HKD 504,986.30 = (HKD7,261.79) |
Notes:
- The above examples are for illustrations only and should not be used as an indication of historical trends or further performance.
- The HKD interest amount is calculated at the relevant interest rate on the basis of the actual number of days elapsed in an interest period and a 365-day year.
- The AUD interest amount is calculated at the relevant interest rate on the basis of the actual number of days elapsed in an interest period and a 360-day year.
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Risk Disclosure Statement
Foreign Exchange Forward Contract is not principal-protected. Customers bear a foreign exchange risk as the exchange rate between the deposit currency and currency bought by Customers changes between the time the transaction is entered into and the time the deposit matured. The return on Foreign Exchange Forward Contract is dependent on the movement of the specified currencies. This product is an illiquid instrument which is not transferable or tradable. Customers should therefore be prepared to hold this investment until the maturity date. Customers assume the full credit risk of the Bank. Customers must make their own independent decision as to whether and on what terms to enter into a transaction and should take professional advice as appropriate. No advice or recommendation was given by the Bank or its staff. The above information is for reference only and does not constitute any offer or solicitation to subscribe. Prior to investing in this product, Customers should read the general terms and conditions and the product specific information contained in the Confirmation in relation to the transaction, together with any other terms or customer agreements to which the Transaction may be subject. |
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