Ratio forward extra

A ratio forward extra allows you to secure a protection rate (slightly better than the benchmark forward rate), while allowing you to take 100% advantage of a favourable move in the spot rate at expiry, provided that the spot rate at expiry is not below the knock-in barrier. However, you may be obligated to sell 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 below the knock-in barrier.

Complexity level :

:

Catégorie : 3 *

Guarenteed protection rate :

Protection rate level against benchmark forward rate :
Slightly better

Amount dealt at expiry :
Potentially higher than the notional amount

In what market to use it ?

Participation in a favorable move in spot :

Scenario 1
At expiry, if the spot rate is less favourable than the protection rate, you can sell the notional amount at protection rate.

Scenario 2
At expiry, if the spot rate is between the protection rate and the knock-in barrier rate, you are released from any obligation and you can therefore sell the amount of your choice at spot rate.

Scenario 3
At expiry, if the spot rate is below the knock-in barrier rate, you must sell twice the notional amount at protection rate.

Currency cross	EUR / USD
Side	Sell USD
Contract maturity	6 months
Benchmark forward rate	1,109
Protection rate level	1,1070
Improved rate level	N/A
Readjusted rate level	N/A
Low barrier level	1,0600
High barrier level	N/A
Participation rate	100%
Ratio	1 : 2
Reserve of points	N/A
Type of contract	European
Frequency of fixings	N/A
Frequency of deliveries	N/A
Fixing	10 am, New-York time

Advantages

Disadvantages