There are various derivative financial instruments on the market which can protect you from foreign exchange interest rate risk. For contracting derivatives, it is necessary to conclude a Framework Agreement with Zagrebačka banka. Instruments offered by Zagrebačka banka:
Protection from foreign exchange risk
An FX forward agreement serves as protection against short-term exposure to currency risk. Forward enables currency exchange transactions with settlement dates longer than two working days.
No additional costs are paid for forward agreements. FX Forward is calculated by adding the difference in interest rates of two currencies that are the subject of the Agreement to the current market rate.
An FX swap is an instrument which enables bridging illiquidity in one currency based on existing liquidity in another currency. It is a simultaneous spot purchase of one currency and forward sale of another or spot sale of one currency and forward purchase of another. The forward purchase and sale rate is calculated in the same way as for FX forward.
A currency option is an agreement that gives the buyer the right, but not the obligation, to exercise the option. The amount, rate or strike price of the currency to be exchanged and the execution date or exercise date are predefined. The option to purchase or call option gives the buyer the right to buy a certain currency, and the option to sell or put option gives him the right to sell a certain currency.
Protection from interest rate risk
Interest rate swap implies the exchange from a floating rate to a fixed rate and vice versa. This instrument is used to manage interest rate mismatch of assets and liabilities of a company, protect from rising interest rates (exchange from floating rate to a fixed rate) and possible reduction of interest cost (exchange from fixed interest rate to a floating rate) in case of a fall in reference interest rates (Libor, Euribor).
Forward rate agreement is an agreement in which one contracting party agrees to pay the counterparty a fixed interest rate for a predetermined period (the so-called "FRA rate"), and the counterparty agrees to pay an interest rate that will be determined on a specific future start date. Payment calculation will be based on the nominal amount as, for example, the difference between the FRA rate and the market rate on the maturity date. This instrument is used for short-term interest rate risk exposure.
Cross currency interest rate swap is an agreement on the exchange of amounts of money in different currencies, where one party periodically pays the counterparty fixed amounts in the agreed upon currency (calculated on the basis of fixed or variable interest rates for nominal amounts in the agreed upon currency) during the entire duration of the transaction, while the counterparty periodically pays variable or fixed amounts in another currency (calculated on the basis of variable interest rates for nominal amounts in the other currency). In doing so, all the calculations are determined on the basis of previously agreed upon nominal amounts in both currencies. It is also possible to arrange that amounts of money in nominal amounts be exchanged at the beginning or at the end of the concluded swap period for these types of swaps.
Protection from commodity risk
Commodity swap is used to manage the risk of commodity price changes. Commodity swaps are contracts for the exchange of cash flows in the same currency, where during the same period one party pays to the other a fixed amount (fixed-leg component) calculated on the basis of the agreed fixed commodity price, and in return receives a floating amount (floating-leg component) calculated on the basis of the market value of the commodity price index on a specific date or at the end of a specific accounting period. All value calculations are made on the basis of the nominal (fixed) quantity of individual commodities, while payments are exchanged on predetermined dates. The resulting difference in price is settled in cash, while the underlying commodity is not physically delivered.
HR
