Derivative Products

Derivatives are products whose returns are derived from changes in the value of an underlying asset. These products, used to hedge risk or enhance returns by taking a certain level of risk, may involve the possibility of loss of principal.

Forward

A financial contract that requires the purchase or sale of a specific underlying asset (e.g., currency, commodity, security, etc.) at a predetermined price and quantity.

Advantages

The transaction amount and maturity can be customized according to the customer’s needs.

An ideal derivative product for companies that export and/or wish to avoid foreign exchange risk on their balance sheets.

Can be used to hedge against fluctuations in the price of the underlying asset or to generate returns from these fluctuations.

Once the transaction is executed, it cannot be reversed, and changes in market prices do not affect the agreed price during the transaction.

Currency Swaps

A derivative contract involving the exchange of cash flows in two different currencies over a specified period.

Advantages

Does not involve currency risk and helps companies manage their cash flows.

The maturity date is fixed, with cash flows realized at both the beginning and end of the term.

Option

Derivative contracts that provide the right to buy or sell a specified amount of an underlying asset (e.g., foreign currency, commodity, security, etc.) at a pre-agreed price, either at a specified maturity date or any time during the maturity period. The right granted to the buyer creates an obligation for the seller of the option.

Advantages

Maturity, quantity, and price can be customized based on the client’s needs.

Can be used to hedge against risks such as currency, market, and interest rate fluctuations.