Participating forward releasable

A participating forward releasable allows you to secure a protection rate (slightly less favourable than the benchmark forward rate) while allowing you to take full advantage (no ceiling) of a favourable move in the spot rate at expiry, in the limit of the participation rate. However, this scenario is possible only if the low barrier is touched during the lifetime of the contract.This is known as an American barrier.

Complexity level :

:

Catégorie : 2 *

Guarenteed protection rate :

Protection rate level against benchmark forward rate :
Slightly less favourable

Amount dealt at expiry :
Same as the notional amount

In what market to use it ?

Participation in a favorable move in spot :

Hypothesis A : If during the lifetime of the contract, the low barrier has not been touched:

 

Scenario A1

At expiry, if the spot rate is less favourable than the protection rate, you can buy the notional amount at protection rate.

 

Scenario A2

At expiry, if the spot rate is better than the protection rate, you must buy the notional amount at protection rate.

 

Hypothesis B : If during the lifetime of the contract, the low barrier has been touched:

 

Scenario B1

At expiry, if the spot rate is less favourable than the protection rate, you can buy the notional amount at protection rate.

 

Scenario B2

At expiry, if the spot rate is better than the protection rate, you must buy 50% of the notional amount at protection rate and you can buy 50% of the notional amount at spot rate.

Currency cross	EUR / USD
Side	Buy USD
Contract maturity	6 months
Benchmark forward rate	1,1030
Protection rate level	1,0940
Improved rate level	N/A
Readjusted rate level	N/A
Low barrier level	1,0650
High barrier level	N/A
Participation rate	50%
Ratio	1 : 0,5
Reserve of points	N/A
Type of contract	American
Frequency of fixings	N/A
Frequency of deliveries	N/A
Fixing	10 am, New-York time

Advantages

Disadvantages