A forward ratio allows you to secure a better protection rate than the benchmark forward rate. However, you may be obligated to buy an amount higher than the notional amount (at protection rate and within the limit of the defined ratio) if the spot rate at expiry is above the protection rate.
Complexity level :
:
Catégorie : 3 *
Guarenteed protection rate :
Protection rate level against benchmark forward rate :
Better
Amount dealt at expiry :
Potentially higher than the notional amount
In what market to use it ?
Participation in a favorable move in spot : No
Scenario 1
At expiry, if the spot rate is less favourable than the protection rate, you can buy the notional amount at protection rate.
Scenario 2
At expiry, if the spot rate is better than the protection rate, you must buy twice the notional amount at protection rate.
Currency cross |
EUR / USD |
Side |
Buy USD |
Contract maturity |
6 months |
Benchmark forward rate |
1,1030 |
Protection rate level |
1,1140 |
Improved rate level |
N/A |
Readjusted rate level |
N/A |
Low barrier level |
N/A |
High barrier level |
N/A |
Participation rate |
N/A |
Ratio |
1 : 2 |
Reserve of points |
N/A |
Type of contract |
N/A |
Frequency of fixings |
N/A |
Frequency of deliveries |
N/A |
Fixing |
10 am, New-York time |
Advantages
- You benefit from a guaranteed protection rate whatever the movements in the exchange rate
- The protection rate is better than the benchmark forward rate
Disadvantages
- You cannot benefit from a favourable move in the spot rate
- You may be obligated to buy an amount higher than the notional amount