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Trade Finance

Currency swap

Set the exchange rate for direct and reverse transactions

For example, your business cycle at certain stages implies the need of dollar sale and euro purchase, aking the reverse exchange from euros to dollars afterwards. In order to avoid the costs of a double currency exchange (counter operations on the exchange of currencies) and natural risks caused by exchange rate fluctuations, you can enter the currency swap.

Currency swap involves the simultaneous agreement on two transactions; in our example, the first transaction is to buy the euros and the second to sell them back for dollars some time later. Therefore, the exchange rates for the first and the second transactions are set in advance and already known. Consequently, you can adjust the expenditure part of the business cycle for the relevant costs while planning your work.
Accordingly, the currency risk is fully passed on to the bank.

Fx forward

Set the exchange rate for certain date

For example, you purchase some goods or batch of products under a contract, in which all prices and amounts are fixed in us dollars. However, to sell all these goods you plan only after some time and in euro.
In such situation currency risk arises. The source of risk is the volatility of the exchange rate, since you have to exchange income from euros to dollars after selling goods (or part thereof); while the exchange rate at the time of receipt of the income is unknown.



The solution in this case will be fx forward. It is the deal with the bank, in which you set the exchange rate in advance at any particular date in the future.
All currency risk then is taken by the bank, and no matter what will be the rate of the euro against the dollar at the time of final payment.

Non-delivery forward (ndf)

Set the exchange rate without any certain date

In case the timing and amounts of your transactions are not always amenable for planning, the most suitable instrument for you is non-delivery forward. Unlike the usual fx forward, you yourself, using the rietumu fx trading platform, have the option in the regime of 24/5 to set the exchange rate and to choose the date of exchange in accordance to your needs.

EXAMPLE. In the coming days and weeks, you will need to exchange dollars into euros. You consider current exchange rate as acceptable for you and you want to hedge against currency fluctuations in the future. Your actions in this case could be the following. On the rietumu fx trading platform without real movement of funds you purchase 100 000 euro for us dollars at the current exchange rate of 1.10.


Notes. Primarily, using the trading platform of rietumu fx you buy euros. When you need to exchange the funds, you make the exchange on your current account, and simultaneously close the non-delivery currency position on the platform. Therefore, the loss obtained from the exchange on the current account will be compensated by the non-delivery transaction.

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