The Convertible Forward
An innovative Anglo Irish Bank product for the US Dollar and Sterling buyer
How the "Convertible Forward" works:
Assume:
Current EUR/USD 3Mth Forward Rate .8680
EUR/USD 3Mth Convertible Forward rate .8650
Conversion rate: .9500
Example:
A Company who has USD to purchase in 3 months time is looking for a product that will provide protection from a stronger USD,
and at the same time allow them the opportunity to benefit should the USD weaken dramatically over the period.
It does not however, wish to pay an upfront premium for this product.
The "Convertible Forward " will provide the Solution
The Convertible Forward:
The Company enters into a 3-month forward contract with Anglo Irish Bank to purchase USD at the convertible forward
rate of .8650.
If at any time during the 3-month period the EUR/USD touches the conversion rate of .9500 the forward
contract will be automatically converted into a USD call option, thereby discharging any obligation the company had
under the forward contract.
Examine the possible outcomes in 3 months:
A.
If the EUR/USD is at .8200 in 3 month's time, you will purchase USD at the convertible forward rate of .8650.
B.
If the EUR/USD is at .9400 in 3 month's time but has not touched .9500 during the three-month period, you will be required to purchase USD at the convertible forward rate of .8650.
C.
If the EUR/USD is at .9400 in 3 month's time but has touched .9500 during the 3 month period, your forward contract will convert into a USD call option, which you won't exercise and you will be free to purchase USD in the market at .9400.
D.
If the EUR/USD is at .9700 in 3 months time, the same rules apply as in C. above and you are free to purchase USD in the market at .9700 (this would ultimately be the best possible outcome for your company).
Convertible Forwards can be quoted in all major currency pairs and tailored to your specific needss
Contact our Corporate
foreign exchange desk for more information on how our services
can benefit you
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