Ahlibank can help corporate customers manage their currency exposure.
Customers can leverage Ahlibank’s strength and expertise as a market maker and liquidity provider to the foreign exchange and interest rate markets.
- Customers can buy or sell a currency on a specific future date to protect themselves from market volatility and limit their currency risk.
- A company that is aware of a forthcoming, but not immediate, foreign exchange requirement is at risk from a change in the F/X rate between the present date and the date of the future obligation. An adverse movement in the F/X rate can leave an importer with goods that are higher priced and possibly eliminate profit margins.
- An F/X forward rate is, arithmetically, no different to an F/X spot rate. It is simply a product of the underlying spot rate, the number of days in the future the deal is to be booked for, and the interest rate differential between the two currencies involved.
- Customers can use an F/X swap to manage cash-flows in the period between buying and selling goods.
- By using the positive cash flow in one currency, a customer may swap those funds into another currency to manage the time delay between payment for imported goods and their subsequent sale in the domestic market.
- An F/X option operates in a similar way to an insurance policy, in that it can protect a company from adverse movements in an exchange rate for the payment of an option premium.
- This option gives the customer the opportunity to hedge against future adverse movements in an exchange rate while benefiting from any positive movements. For this flexibility in the management of future obligations, the customer may pay a premium to the bank at the time of buying the option.
Interest rate hedging
- Customers can reduce their vulnerability to changes in interest rate movements with interest rate hedging. Ahlibank provides innovative products and strategies to help manage customers manage their interest rate exposure and reduce uncertainty.
Interest rate swap
- An interest rate swap (IRS) is a suitable structure for customers who have undertaken long-term borrowing and have concerns about rising interest rates.
- An IRS does not represent a new cash borrowing as no principal amounts are exchanged. It is simply a vehicle for fixing the cost of an existing borrowing commitment.
- Ahlibank can help a customer in hedging interest rate exposure even if the original term-borrowing being hedged was undertaken with another institution.
Interest rate caps and floors
- An interest rate cap is an option-style interest rate hedging instrument which can be considered as an alternative to an IRS.
- An interest rate cap can provide a customer with the right (but not the obligation) to hedge interest rate exposure in a similar style to an F/X option. It requires the payment of a premium to the bank similar to the premium payable by the buyer of an F/X option.
- An interest rate floor provides a customer with the opportunity to benefit from downward movements in interest rates and allows them to lock-in variable long-term funding costs at lower levels.
- An IRS makes it easier for customers to budget by providing a fixed borrowing cost over the long term. A customer can also take on a cap that provides increased flexibility in managing interest rate risk in return for the payment of an insurance-style premium.
An International Swaps and Derivatives Association (ISDA) agreement is a legal document signed between two parties which sets the Terms and Conditions should a dispute arise that requires settling during the life of an IRS or cap/floor.
The ISDA agreement is a standard global document between two institutions that assists in the safe trading and management of these instruments.
Each ISDA document is tailored according to the negotiations between the two companies through the exchange of an additional document called a ‘schedule to the agreement’ that summarises the modifications to the standardised global agreement.
Ahlibank provides investment products that offer potentially higher returns than deposits. Customers could be looking to diversify their portfolios, increase investment returns, or hedge existing risk. We are always pleased to talk about ideas with our customers.
Fixed income products
- Our fixed-income products provide an alternative to conventional deposits and can deliver attractive returns and portfolio diversification to customers with surplus liquidity.
- Ahlibank can source bonds and sukuks for customer consideration and can help customers to create a diversified portfolio.
- Bonds are normally issued as a source of long-term funding and can be sold on in the global market during their lifetime. The holder of the bond can sell before maturity should liquidity be required, or the holding can be sold for profit.
Structured deposits and notes
- Our structured products give investors the opportunity to diversify their investment portfolios.
- Structured deposits and notes are an alternative to fixed deposits and can provide attractive returns. They are linked to the performance of an underlying market, such as a stock market or the price of a commodity.
- Investment structures can be developed according to the individual requirements of a customer.