Ratio two-way bonus forward

A ratio two-way bonus forward, allows you to secure a protection rate (less favourable than the benchmark forward rate) while allowing you to benefit from an improved rate, provided that the high barrier is touched during the lifetime of the contract. This improved rate is much better than the initial protection rate and better than the benchmark forward rate. However, you may be obligated to sell an amount higher than the notional amount, at protection rate or at improved rate (depending on the case), within the limit of the defined ratio.

Complexity level :

:

Catégorie : 3 *

Guarenteed protection rate :

Protection rate level against benchmark forward rate :
Less favourable

Amount dealt at expiry :
Potentially higher than the notional amount

In what market to use it ?

Participation in a favorable move in spot : No

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 twice 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 improved rate, you can sell the notional amount at improved rate.

 

Scenario B2

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

Currency cross	EUR / USD
Side	Sell USD
Contract maturity	6 months
Benchmark forward rate	1,109
Protection rate level	1,1220
Improved rate level	1,0875
Readjusted rate level	N/A
Low barrier level	N/A
High barrier level	1,1375
Participation rate	N/A
Ratio	1 : 2
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