Forward releasable

A forward releasable allows you to secure a protection rate (less favourable than the benchmark forward rate) while allowing you to take 100% advantage and fully (no floor) of a favourable move in the spot rate. However, this scenario is possible only if the high 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 :
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 high barrier has not been touched:

 

Scenario A1

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

 

Scenario A2

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

 

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

 

Scenario B1

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

 

Scenario B2

At expiry, if the spot rate is better than the protection rate, you are released from any obligation and you can therefore sell the amount of your choice at spot rate.

Currency cross	EUR / USD
Side	Sell USD
Contract maturity	6 months
Benchmark forward rate	1,109
Protection rate level	1,1240
Improved rate level	N/A
Readjusted rate level	N/A
Low barrier level	N/A
High barrier level	1,1300
Participation rate	100%
Ratio	1 : 1
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