Untitled - VÚB banka

vub.sk

Untitled - VÚB banka

CONTENTS

Foreign Exchange, FX

FX Spot Conversion ...................................................................................................................................5

FX Forward Conversion ..............................................................................................................................7

Currency Swap ...........................................................................................................................................9

Money Market, MM

Fixed Term Deposit ..................................................................................................................................13

Treasury Bills ............................................................................................................................................14

MM Structured Products

Depo+ .......................................................................................................................................................17

Daily Basis Bonus Depo ...........................................................................................................................19

Interest Rate Derivatives

Forward Rate Agreement .........................................................................................................................23

Interest Rate Swap ...................................................................................................................................26

Cross Currency Swap ..............................................................................................................................29

Cap ...........................................................................................................................................................32

Floor .........................................................................................................................................................35

Hedging Strategies ...................................................................................................................................37

Swaption ..................................................................................................................................................39

FX Options

Currency Options .....................................................................................................................................43

Barrier Options .........................................................................................................................................48

Digital Options ..........................................................................................................................................51

Capital Market (Fixed Income)

Capital Market Instruments ......................................................................................................................55

Types of Bonds ........................................................................................................................................56

Bond Issue Brokerage ..............................................................................................................................58

Selling Issued Securities on Primary Market ...........................................................................................59

Developing Request to List Securities with BCPB ..................................................................................60

Primary Capital Market ............................................................................................................................61

Secondary Capital Market .......................................................................................................................62

Repurchase Agreement (REPO) ...............................................................................................................63

Reverse Repurchase Agreement (Reverse REPO) ...................................................................................66

Analytical Reports .................................................................................................................71

Contact Persons ....................................................................................................................72


FX Transactions


FX

Transactions

FX Spot Conversion

Product Characteristics

A Foreign Exchange Spot Conversion means the purchase or sale of a certain amount of one currency in

exchange for another currency at a rate which is set on the basis of current exchange rate movements

in the FX market, i.e., demand and supply of a specific currency. It is used to convert funds for purposes

of international outgoing and incoming payments, or to convert funds transferred between customer

accounts denominated in various currencies.

FX Spot: Requirements and Transaction Characteristics

Notional amount

Currency

Maturity

min. 500.000,- SKK, or other currency equivalent

any currency quoted on the FX rate list of VÚB, Inc.

maximum 2 business days

Types of FX conversions:

• Delivery Spot – physical settlement on customer accounts on spot value date, i.e., D+2, or two business

days following the deal date.

• FX Non-Delivery Spot – on the settlement date identical with Delivery Spot deal; however, there is no

movement of the principal amounts on customer accounts. Only the difference of the two transactions

is settled, i.e., the transactions are netted.

• ”Before spot” Delivery Forward means a purchase or sale of a certain amount of one currency in

exchange for another currency with the value date D+0 (”today”) or D+1 (”Tom Next, Tomorrow Next”)

at the exchange rate identical with the current (spot) rate on the financial market adjusted for the interest

differential of the given currencies.

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FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Money Market

Structured Products

Sample Use of an FX Delivery Spot Conversion:

For goods delivered from abroad, ALFA, Ltd. is obliged to pay the invoice for Euro 1 Mio payable immediately.

As it does not have the required amount of foreign currency available, it calls VÚB for a quote

of the following exchange rate for purchase and sale of EUR/SKK – 41.050/41.150. The company was

offered an FX rate of 41.150. The customer is faced with the following options:

• accepts the offered rate, purchases foreign currency with the D+2 value date, i.e., in two business

days (settlements on the day D+0 or D+1 also available) and issues an international outgoing payment

instruction,

• does not accept the offered rate, decides to wait for a more favorable FX market situation development,

while making ongoing inquiries about the developments, or

• does not accept the offered rate and instructs the bank to purchase foreign currency within a fixed

time period at a requested exchange rate by issuing an ”Order”. If the market reaches the requested

exchange rate level, the bank buys Euros and informs the customer. If not, the ”Order” expires automatically

at the end of the agreed validity period.

Sells SKK,

buys EUR

ALFA, Ltd.

Sells EUR,

buys SKK

Interest Rate Derivatives

Currency Options

Capital Market

Pricing

The Foreign Exchange rate value depends on current FX market developments.

Summary

• FX transactions (foreign currency outgoing or incoming payments) at individual exchange rates

reflecting current currency development in the interbank market

• Possibility to issue fixed term instruction to make a deal in a given currency at a requested exchange

rate, so called ”Order”

• Possibility to settle earlier than on spot value date

Documentation

• Signed Framework Agreement

Contact Persons

Drefková Lucia +421 2 5055 9650 ldrefkova@vub.sk

Drozdíková Romana +421 2 5055 9660 rdrozdikova@vub.sk

Hubíková Marianna +421 2 5055 9640 mhubikova@vub.sk

Jakab Ladislav +421 2 5055 9630 ljakab@vub.sk

Petríková Katarína +421 2 5055 9620 kpetrikova@vub.sk

Skyvová Viola +421 2 5055 9610 vskyvova@vub.sk

Analytical Reports

6


FX Forward Conversion

Product Characteristics

An FX Forward conversion represents an agreement (a commitment) on the future exchange of two

currencies with a value date later than the spot value date, i.e., at least D+3, while the future exchange rate

is specified at the commitment date. It serves the purpose of hedging FX risk of customers and their future

foreign currency cash flows. Forward is not a standardized product, i.e., the amounts and maturity dates

are specified to meet individual needs of customers.

FX Forward: Requirements and Transaction Characteristics

Notional amount

Currency

Maturity

min. 500.000,- SKK, or other currency equivalent

any currency quoted on the FX rate list of VÚB, Inc.

minimum D+3 – maximum 24 months

Types of FX Forwards

• Delivery Forward means a transaction whereby an agreed amount of one currency is purchased or

sold in exchange for another currency at a forward exchange rate negotiated in advance for a negotiated

forward delivery of a currency and settlement of the deal via customer accounts.

• Provided the customer is not in a position to specify the exact FX forward delivery date,

a so-called Time option may be agreed upon, i.e., a forward deal with a variable exercise date (variable

maturity date), while the deal may be settled at any time over the specified life of the deal, as

instructed by the customer.

Non-Delivery Forward – NDF means a transaction whereby an agreed amount of one currency is purchased

or sold in exchange for another currency at a forward exchange rate negotiated in advance for

a negotiated period with no movements of principal amounts in customer accounts on the maturity date

when the transactions are settled by netting.

Pricing

The Forward rate value is determined by a mathematical formula using current spot FX rate and

interest rates of currencies subject to conversion, while the resulting exchange rate is the total sum

of spot exchange rate and forward points, i.e., the interest differential of the two currencies over the

specified period.

FX Forward rate calculation:

Forward rate = Spot +

Spot

D

IRVM

IRHM

Spot x D x (IRVM – IRHM)

(36000 + IRHM x D) – Spot

– current FX Bid / Offer rate

– duration, i.e., number of contracted days (from spot value date to settlement date)

– Bid / Offer interest rate of the secondary currency

– Bid / Offer interest rate of the base currency

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FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Money Market

Sample Use of on FX Delivery Forward

ALFA, Ltd. received an invoice for delivery of goods from abroad for 500.000,- EUR with a credit period of

60 days. As the company charges its customers for the goods sold in SKK, and its original commitment

is denominated in EUR, it is exposed to FX risk for the period of the following two months. According to

recent statements of analysts, the market expects the SKK to depreciate over the coming period, which

would result in a loss incurred by the customer compared to their original price calculation. The company

decides to hedge its EUR/SKK exchange rate risk exposure by entering a forward deal corresponding

to the maturity of their foreign currency commitment. Actual fund exchange between the bank and the

customer does not occur on the given deal day, but only on the forward deal maturity date at the originally

agreed exchange rate.

Structured Products

Contract

entered into

D+0

ALFA, Ltd.

Spot

D+2

Sells SKK,

buys EUR

Sells EUR,

Buys SKK

ALFA, Ltd.

Forward maturity

date

D+60

Interest Rate Derivatives

Currency Options

Summary

• Forward is a product to hedge exchange rate risk of foreign currency cash flows

• Possible use of FX market speculative trading

Documentation

• Signed Framework Agreement

Contact Persons

Drefková Lucia +421 2 5055 9650 ldrefkova@vub.sk

Drozdíková Romana +421 2 5055 9660 rdrozdikova@vub.sk

Hubíková Marianna +421 2 5055 9640 mhubikova@vub.sk

Jakab Ladislav +421 2 5055 9630 ljakab@vub.sk

Petríková Katarína +421 2 5055 9620 kpetrikova@vub.sk

Skyvová Viola +421 2 5055 9610 vskyvova@vub.sk

Capital Market

Analytical Reports

8


Currency Swap

Product Characteristics

A currency swap means the purchase/sale of one currency for another currency combined with its resale/

repurchase on a future specified date at an exchange rate agreed upon in advance. It is a combination of

a spot with a forward, while the forward exchange rate reflects the interest expense and interest income

of the forward period.

Currency Swap: Requirements and Transaction Characteristics

Notional amount

Currency

Maturity

min. 500.000,- SKK, or other currency equivalent

any currency quoted on the FX rate list of VÚB, Inc.

maximum 24 months

Types of Currency Swaps

• Buy & Sell (spot purchase of the base currency with simultaneous forward sale of the base

currency)

• Sell & Buy (spot sale of the base currency with simultaneous forward purchase of the base

currency)

Pricing

Swap transaction pricing principle is identical with currency forward pricing. The resulting swap exchange

rate is the sum of spot exchange rate and swap points, i.e., interest differential of currencies subject to

conversion for the relevant period.

Swap rate = Spot +

Spot x D x (IR VM – IR HM )

(36000 + IR HM x D) – Spot

Spot – current FX ”middle” rate

D – duration, i.e., number of contracted days (from spot value date to settlement date)

IRVM – Bid / Offer interest rate of the secondary currency

IRHM – Bid / Offer interest rate of the base currency

9

FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Money Market

Sample Use of a Currency Swap

Due to lower interest expenses, ALFA, Ltd. decides to take out a short-term 6-month, USD loan of

500.000,- to fund operating costs. Its operating costs are paid in SKK, therefore it has to convert the borrowed

amount into the local currency. At the same time, it is exposed to FX risk for the period until the final

loan repayment. The company decided to do a ”Buy & Sell” currency swap: It sells the amount of USD

borrowed and buys SKK at the ”FX middle” rate, and at the same time it agrees to the USD repurchase on

the agreed maturity date at an exchange rate agreed upon (FX middle rate + swap for 6 months).

ALFA, Ltd.

ALFA, Ltd.

Structured Products

Negotiates

the Contract

D+0 D+2

Pays 500.000 USD

Pays SKK equivalent

Pays SKK equivalent

D+184

Pays 500.000 USD

Exchange of cash-flows at the beginning of the swap

Exchange of cash-flows at the end of the swap

Interest Rate Derivatives

Currency Options

Summary

• Hedges FX risk over the foreign currency funding period

• Possible extension of forwards in case of changed maturity of foreign currency denominated account

receivables and payables.

Documentation

• Signed Framework Agreement

Contact Persons

Drefková Lucia +421 2 5055 9650 ldrefkova@vub.sk

Drozdíková Romana +421 2 5055 9660 rdrozdikova@vub.sk

Hubíková Marianna +421 2 5055 9640 mhubikova@vub.sk

Jakab Ladislav +421 2 5055 9630 ljakab@vub.sk

Petríková Katarína +421 2 5055 9620 kpetrikova@vub.sk

Skyvová Viola +421 2 5055 9610 vskyvova@vub.sk

Capital Market

Analytical Reports

10


Money Market

Money Market


Money Market


Money

Market

Fixed Term Deposit

Product Characteristics

A fixed term deposit serves the purpose of earning returns on investing temporarily available surplus

funds. It offers the possibility to negotiate various maturities and individual interest rates reflecting the

current situation of the interbank deposit market at the time of negotiating the deal.

Fixed Term Deposit: Requirements and Transaction Characteristics

Minimum amount

Currency

Reference rate

Maturity

Interest rate

Interest calc. method

minimum 750.000,- SKK

SKK, EUR, USD, and others

BRIBID or relevant reference rates for other currencies

standard 12 months, or longer

According to interbank market situation

Always act/360 – actual number of days in the period / 360 days

For SKK deals, BRIBID (BRatislava Interbank Bid rate) is applied as a reference rate, being the interest

rate fixed by 11.00 a.m. on business days by the Central Bank (NBS fixing). Contracts denominated in

EUR use EURIBOR, contracts denominated in CZK use PRIBOR, and for all other main currencies LIBOR

is used.

Sample Use of a Fixed Term Deposit

ALFA, Ltd. receives 5.000.000,- SKK for delivery of goods. As it needs the funds in two weeks, it decides

to deposit the funds for 14 days at 5.2 % p.a. At maturity, the company receives back its deposit of 5 Mio

SKK + interest earned for 14 days in the amount of 10 111.11 SKK (taxation not considered).

Documentation

• Signed Framework Agreement

Depositing Funds

Paying back the deposited funds

and interest income earned

Contact Persons

Drefková Lucia +421 2 5055 9650 ldrefkova@vub.sk

Drozdíková Romana +421 2 5055 9660 rdrozdikova@vub.sk

Hubíková Marianna +421 2 5055 9640 mhubikova@vub.sk

Jakab Ladislav +421 2 5055 9630 ljakab@vub.sk

Petríková Katarína +421 2 5055 9620 kpetrikova@vub.sk

Skyvová Viola +421 2 5055 9610 vskyvova@vub.sk

13

CLIENT

FX Transactions Money Market štrúkturované produkty Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Money Market

Treasury Bills (T-Bills)

Product Characteristics

Treasury bills are discounted securities issued by the Ministry of Finance of the Slovak Republic and rank

among the most liquid securities on the Slovak market. T-bills are traded on the short-term securities

primary and secondary markets. On the primary market, ”Národná Banka Slovenska”, the Central Bank,

places new T-bill issues underwritten by identified primary market participants (e.g., banks and insurance

companies). On the secondary market, primary market participants trade with their customers. T-bills are

traded at a minimum size of 1 Mio SKK and its multiples. T-bills traders are required to hold proprietary

accounts with the National Bank of Slovakia, where T-bill purchase and sale transactions are settled.

Structured Products

Requirements and T-Bills Buy and Sell Transaction Characteristics

Minimum size

1 Million SKK

Currency

SKK

Maturity

From 1week to 12 months

Interest rate

According to current market situation

Interest method

Discounted interest calculation method

T-bill Price Calculation

PRICE = N – (N x R x D/36000)

Interest Rate Derivatives

Currency Options

Capital Market

PRICE T-bill price

N T-bill par value

R interest rate in %

D duration, number of days to maturity

Documentation

• T-bill traders are required to hold proprietary accounts with the National Bank of Slovakia, where T-Bill

purchase and sale transactions are settled.

• Signed Mandate Contract

Contact Persons

Drefková Lucia +421 2 5055 9650 ldrefkova@vub.sk

Drozdíková Romana +421 2 5055 9660 rdrozdikova@vub.sk

Hubíková Marianna +421 2 5055 9640 mhubikova@vub.sk

Jakab Ladislav +421 2 5055 9630 ljakab@vub.sk

Petríková Katarína +421 2 5055 9620 kpetrikova@vub.sk

Skyvová Viola +421 2 5055 9610 vskyvova@vub.sk

Analytical Reports

14


Structured Products

Structured Products


Structured Products


Structured

Products

DEPO+

Product Characteristics

DEPO+ is a deposit product allowing for the earning of an extraordinary interest rate on a deposit. It makes use of

the expected FX rate movement of any currency pair (e.g. EUR/SKK). It is intended namely for customers in need

of buying or selling other currences who are not satisfied with the current spot FX rate and at the same time have

funds intended for the purchase (sale) available and deposited at standard interest rates. The DEPO+product

allows them to earn a much higher interest rate on their deposits (by 5% higher and more) and at the same time

to participate and benefit from favorable movements in exchange rates in the following way: Customers negotiate

a period for which they deposit their funds and so-called ”exchange rate for eventual conversion” – this

being an exchange rate at which they will be willing to sell their deposited funds. Two days prior to the maturity

date of the deposit, this rate is compared with the current NBS fixing rate and if, by its positive development, the

fixing rate is higher than the exchange rate agreed for eventual conversion, the deposited funds are converted

to the other currency at the rate negotiated for the eventual conversion. If not, the customer receives the original

deposited currency. However, interest earned is always credited in the original denomination of the deposit.

DEPO+: Requirements and Transaction Characteristics

Notional amount

Currency

Maturity

Interest rate(+)

Eventual conversion

Fixing NBS

Interest method

min. 20 Mio SKK, or other currency equivalent

SKK, EUR, USD, and others

1 week to 2 years

- always higher than prevailing market interest rate,

- negotiable; the closer to the current rate, the higher the yield

rate

exchange rate fixed by NBS 2 days prior to deposit maturity

always act/360 – actual number of days in period / 360 days

Pricing

The relationship between the interest rate on DEPO+ and the exchange rate for eventual conversion

depends on the volatility (size of change) of the identified currency pair exchange rate movements.

Sample Use of a DEPO+

ALFA, Ltd. is interested in depositing 40 Mio SKK for a period of two weeks at a higher rate than the

market interest rate. In case of SKK revaluation, the company is willing to exchange its funds for EUR, as

it pays its international trade invoices in EUR. It decides for a DEPO+ with the following parameters:

Deal Date:

June 1, (D+0)

Deposit Starting Date: June 3, (D+2)

Deposit Maturity Date: June 17, (D+16)

Interest Rate of DEPO+: 8.50 % p.a. (prevailing market interest rate on deposits being 5%)

Eventual Conversion

Exchange Rate: 40.800 EUR/SKK (current market rate being 41.200)

Interest Payment in: SKK

Principal Payment in: SKK or EUR

Amount paid at maturity: SKK 40.000.000,- or optional EUR equivalent converted at the eventual

conversion exchange rate as specified above – depending on the conversion

pre-requisites (see below).

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FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Money Market

Structured Products

Conversion Pre-requisites:

If the EUR/SKK exchange rate fixed by the National Bank of Slovakia two business days prior to the

deposit maturity date, and disclosed at the NBSK02 Reuters site, is less than or equal to the eventual

conversion exchange rate, i.e., 40.800, the bank pays out the principal deposit in EUR.

If the EUR/SKK exchange rate fixed by the National Bank of Slovakia two business days prior to the

deposit maturity date, and disclosed at the NBSK02 Reuters site, is higher than the eventual conversion

exchange rate, i.e., 40.800, the bank pays out the principal deposit in SKK.

Analysis:

In case of converting the principal amount, the customer may pay its international invoices at a much

lower rate compared to the rate available at the deal date. The risk the customer is exposed to is

the difference between the current spot rate at a future date, being two days to prior to the deposit

maturity date, and the eventual conversion exchange rate (i.e., they could have bought the given currency

cheaper).

In case of non-conversion, the customer may buy the required currency at the current spot exchange

rate, or they may wait further and deposit their funds as another DEPO+.

In both cases, the customer is guaranteed an interest payment of 8.50 % p.a. on the deposit principal

amount, and by 3.5 % more than the prevailing interest paid on two week deposits. The interest is always

paid in SKK; it is never converted to EUR.

Interest Rate Derivatives

Currency Options

Capital Market

Optional uses of DEPO+

Under certain circumstances, the DEPO+ product may be also used by customers who do not need

or wish to convert their funds (having SKK only), but who want to benefit from future exchange rate

movements and earn a much higher interest rate. In case customers expect the exchange rate to move

within certain intervals – i.e., the exchange rate repeatedly goes up and down, they may use these

rate movements to earn maximum interest on deposits without incurring any FX losses. In the above

stated specific situation, for example, customers having their funds converted receiving EUR might

deposit the EUR again as DEPO+ for 1 week at the same eventual conversion exchange rate applied

in the first deal (40.800), and at a similarly high yield. In case of the EUR exchange rate returning back

to a level above the specified eventual conversion exchange rate at the deposit maturity date, the EUR

will be converted back to SKK – and the customer receives the original SKK amount while incurring

no FX losses, and at the same time earns an above-average return on both of the deposits. In case of

a favorable market development, these transactions may be repeated several times in a row.

Documentation

• Signed Framework Agreement

Contact Persons

Milan Chúpek +421 2 5055 9500 mchupek@vub.sk

Viera Bialková +421 2 5055 9510 vbialkova@vub.sk

Tomáš Kraus +421 2 5055 9595 tkraus@vub.sk

František Stacho +421 2 5055 9520 fstacho@vub.sk

Analytical Reports

18


DAILY BASIS BONUS DEPO

Product Characteristics

DAILY BASIS BONUS DEPO is a deposit product intended for all our customers trying to obtain returns

by investing their surplus available funds at a higher rate than the prevailing market yield. It makes use

of the exchange rate movements of any currency pair (e.g. EUR/SKK) in the expected interval during

the specified period. Customers negotiate a fixed term of their deposit and interval of expected foreign

exchange rate movements over the future period. For each business day the exchange rate is fixed within

the specified interval, the customers earn on their deposit an interest rate higher than the prevailing market

rate (so-called maximum interest). For each business day when the exchange rate is fixed outside the

specified interval, the customers earn on their deposits an interest rate lower than the prevailing market

rate (so-called minimum interest). The resulting interest earned on the deposit at maturity is the average

of interest rates achieved in individual days. The deposit notional amount and interest is always paid in

the currency of original deposit denomination.

DAILY BASIS BONUS DEPO: Requirements and Transaction Characteristics

Notional amount

Currency

Maturity

Maximum interest

Minimum interest

FX interval

Interest method

min. 40 Mio SKK, or other currency equivalent

SKK, EUR, USD, and others

1 week to 1 year

- interest rate higher than prevailing market rate

- interest rate lower than prevailing market rate

- negotiable – the lower the interval, the higher max. yield

always act/360 – actual number of days in period / 360 days

Pricing

The relationship between the minimum and maximum interest rate and the exchange rate

movement interval depends on the volatility (size of change) of the identified currency pair exchange rate

movements.

Sample Use of a DAILY BASIS BONUS DEPO

ALFA, Ltd. is interested in depositing 40 Mio SKK for two weeks at a rate higher than the market interest rate.

At the same time, it assumes a stable SKK/EUR rate development – over the coming two weeks it expects

an exchange rate move in the interval of 40.900 – 41.500. In case the expectations fail, the company is

willing to accept returns lower than the prevailing market interest rate. It therefore decides on a DAILY

BASIS BONUS DEPO with the following parameters:

Deal Date:

June 1, (D+0)

Deposit Starting Date:

June 3, (D+2)

Deposit Maturity Date:

June 17, (D+16)

BONUS DEPO max. interest rate: 7.50 % p.a. (prevailing market rate being 5 %)

BONUS DEPO min. interest rate: 2.50 % p.a. (prevailing market rate being 5 %)

Exchange Rate Interval:

40.900 – 41.500 EUR/SKK

(current market rate being 41.200 EUR/SKK)

Interest Payments:

SKK

Principal Payment:

SKK

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FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Analysis:

The resulting interest earned on the deposit of the company depends on the number of business days

when the exchange rate was fixed within the specified interval.

Money Market

If the exchange rate was within the FX interval over the entire life of the deposit – the company earns a

yield of 7.5 % p.a.

If the exchange rate was outside the FX interval over the entire life of the deposit – the customer earns

a yield of 2.5 % p.a.

If during business days the exchange rate was fixed both in and out of the FX interval, at the maturity the

deposit will earn an average of the rates applied on individual business days.

Structured Products

Documentation

• Signed Framework Agreement

Contact Persons

Milan Chúpek +421 2 5055 9500 mchupek@vub.sk

Viera Bialková +421 2 5055 9510 vbialkova@vub.sk

Tomáš Kraus +421 2 5055 9595 tkraus@vub.sk

František Stacho +421 2 5055 9520 fstacho@vub.sk

Capital Market

Analytical Reports

Currency Options

Interest Rate Derivatives

20


Interest Rate Derivatives

Interest Rate Derivatives


Interest Rate Derivatives


Interest Rate

Derivatives

Forward Rate Agreements (FRA)

Product Characteristics

FRA (forward interest rate agreement) may be used to fix today a variable interest rate on a deposit or

a liability (e.g. loan) starting in the future. This agreement is independent of the underlying transaction

– the deposit or the loan may also be with another bank.

The transacting parties agree to a fixed interest rate (the FRA rate) applicable for a relevant period in the

future. Two days prior to the starting date of the period (so-called reference date), this rate is compared

with the interest rate of the underlying transaction (reference rate). If the reference rate is higher than the

FRA rate, the buyer of the FRA receives from the seller a netting payment equal to the interest differential

between the two rates. If the reference rate is lower, the buyer of the FRA pays the balance.

FRA Buyer

FRA: Requirements and Transaction Characteristics

Notional amount

Currency

Reference rate

Maturity

FRA Interest Rate

Interest Method

FRA rate > reference rate

reference rate > FRA rate

min. 25 Mio SKK, or other currency equivalent

SKK, EUR, USD, and others

BRIBOR or relevant reference rate for other currency

up to 24 months

calculated according to current market situation

ACT/360, 30/360, etc.

The notional amount is the amount of principal on which the netting payment is calculated.

For SKK deals, BRIBOR (BRatislava InterBank Offered Rate) is used as a reference rate, being an interest

rate fixed by 11.00. a.m. every business day (NBS fixing). Contracts denominated in EUR use EURIBOR,

and contracts denominated in CZK use PRIBOR; for any other main currencies, LIBOR is used.

The beginning and end of the period to be hedged is negotiable. However, three or six month periods are

used. In such cases, three or six month BRIBOR would be used as a reference rate.

In principle, an FRA contract may be terminated before the FRA contract life (which ends by the reference

date) on the basis of its marked to market value.

23

FRA Seller

FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Transaction flows in time

Today

Reference

date

Contract

starts

Maturity

Date

Money Market

Period before

the FRA

contract life

FRA contract life – hedged

period

two business days after the interest

rates are compared a discounted

netting payment occurs

Structured Products

Cash flows

The netting payment is due at the beginning of the hedged period. The interest amount is discounted

and calculated using the following formula:

Netting payment =

(R-F) x D 1

x N x

36 000

(R+D)

1+ 36 000

Interest Rate Derivatives

Currency Options

Capital Market

R – reference interest rate in %

F – FRA interest rate in %

N – notional contract size

D – FRA period in number of days

Sample Use of a FRA:

ALFA, Ltd. plans to make a short-term investment to start in a six month period and be completed in

another six months. For this investment, ALFA, Ltd. plans to take out a six month SKK loan with an interest

rate on the basis of a 6 month BRIBOR. However, this rate will be known at the time of drawing the

loan only. For the company to be able to plan its interest expense, it wants to fix the future interest rate for

its loan. This can be achieved by buying an FRA contract. In 6 months time, if the 6M BRIBOR is higher

than the FRA rate (at 5.30 % p.a.), ALFA, Ltd. pays a higher interest rate on its loan, but from the FRA

contract it receives the netting payment fully covering the increased cost of the borrowing.

Netting

payment

If, in six months time, the 6M BRIBOR is lower than this FRA rate (5,30% p.a), ALFA, Ltd. pays a lower

interest on its loan, but from the FRA contract it has to make the netting payment, thus increasing its cost

of borrowing to the level of the FRA rate.

Netting

payment

ALFA, Ltd.

ALFA, Ltd.

Netting

payment

6M BRIBOR

6M BRIBOR

LOAN

LOAN

Analytical Reports

24


Pricing

The FRA rate depends on market expectations regarding the interest rate developments in the future, or

on the shape of so-called yield curve and implied forward rates.

FRA =

((LR x LD) – (SR x SD)) x 36000

(36000+(SR x SD)) x (LD-SD)

LR interest rate for a long term; LD number of days in the long term

SR interest rate for a short term SD number of days in the short term

FRA forward interest rate

Interest rates shown in %

Summary

• FRA is a product to hedge interest rate risk (short-term interest rate changes)

• FRA may be agreed also without any existing underlying original transaction (e.g. loan)

• An FRA contract buyer is a transacting party seeking protection against increasing interest rates in the

future

• An FRA contract seller is a transacting party seeking protection against decreasing interest rates in the

future.

Documentation

• Signed Framework Agreement

Contact Persons

Milan Chúpek +421 2 5055 9500 mchupek@vub.sk

Viera Bialková +421 2 5055 9510 vbialkova@vub.sk

Tomáš Kraus +421 2 5055 9595 tkraus@vub.sk

František Stacho +421 2 5055 9520 fstacho@vub.sk

25

FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Money Market

Structured Products

Interest Rate Swap (IRS)

Product Characteristics

An interest rate swap is an agreement between two transacting parties, whereby the first party undertakes

to pay a specified floating (or fixed) interest rate on a specified amount of principal and for a specified

period of time, while the second party undertakes to pay a specified fixed (or floating) interest rate

on the same amount of principal and over the same period of time.

An interest rate swap is used to hedge the interest rate risk of the underlying transaction (e.g. a long-term

loan, or purchase of bonds). Similar to the FRA, interest rate swaps are independent of the underlying

transaction, i.e. the original transaction may be also made with another bank.

Coupon Swap

A coupon swap is the most frequently used type of interest rate swap. In this case, a fixed interest rate

is exchanged for a floating interest rate tied to a reference rate (e.g. BRIBOR).

However, with interest rate swaps on specified periodic dates for an interest (coupon) transfer, there are

no two separate payment streams, while the fixed and floating interest rates are compared, with one of

the parties transfering the differential payment only (so called ”netting payment”).

IRS: Requirements and Transaction Characteristics

Interest Rate Derivatives

Currency Options

Capital Market

Notional amount

Currency

Reference rate

Maturity

Fixed Interest Rate

Starting Date

Interest method

Business conventions

min. 50 Mio SKK, or other currency equivalent

SKK, EUR, USD, and others

BRIBOR or relevant reference rate for other currency

1 to 10 years, or longer

negotiable, set to reflect current market situation

spot start, or forward start

act/360, 30/360, act/act, etc.

method of treating holidays (e.g. modified following)

The notional amount is the amount of principal on which the two interest streams are calculated. This

notional amount may remain constant over the life of the swap (plain-vanilla swap), or it may be variably

changed and adjusted.

Depending on the ways of varying the notional amount, the following types of swaps may be distinguished:

• Amortizing swap – the notional amount being gradually reduced by equal repayments

• Annuity swap – the notional amount being gradually reduced by annuity payments

• Step-up-swap – the notional amount being gradually increased (mirror to an amortizing swap)

• Callable swap – with this type of swap, one party is entitled to early termination of the swap waiving

its title for a netting payment

• Putable swap – with this type of swap, one party is entitled to prolong the swap at its maturity under

terms and conditions specified in advance

Analytical Reports

26


For SKK deals, BRIBOR (BRatislava InterBank Offered Rate) is used as a reference rate, i.e. the interest

rate fixed by 11.00 a.m. every business day. Contracts denominated in EUR use EURIBOR, for contracts

denominated in CZK, PRIBOR applies, and for other currencies, LIBOR is used as a reference rate.

Closing an interest rate swap

There are a number of ways to end an interest rate swap:

• Transaction life expiration

• Termination- provided that an early swap termination clause was agreed upon

• Cancellation – both parties may terminate the transaction early; however, a netting payment is transferred

on the basis of the marked to market value of the swap

Pricing

IRS price is specified as a level at which the present value of fixed interest rate equals the present value

of floating payment cash flow stream, i.e. it is fully dependant on the implied forward rates. A swap may

therefore be seen as a succession of FRA contracts with the same rate.

Sample use of a liability-based interest rate swap

For its long-term investment, ALFA, Ltd. arranges an SKK four year loan with an interest rate based on

6M BRIBOR, with semi-annual interest payments. The company strongly believes in interest rates going

up in the future and it would like to hedge this risk of its interest expense increase. Therefore, it decides

to enter an interest rate swap with the bank, whereby the company agrees to make annual fixed interest

rate payments of 4.60 % throughout the life of the loan and to receive from the bank 6M BRIBOR on

a semi-annual basis.

4.60 %

fix rate

6M BRIBOR

ALFA, Ltd.

The 6M BRIBOR payments received from the interest rate swap will fully cover the interest expense of

the company. This way, the company effectively gets rid of the interest rate risk, and at the same time,

as of today, it knows its future cost of borrowing.

27

6M BRIBOR

LOAN

FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

4-year interest rate swap: transaction flows in time, company perspective

Today Company pays

annual fix rate 4,60 % 4,60 % 4,60 % 4,60 %

Money Market

Today

Year 1 Year 2 Year 3 Year 4

End

Structured Products

Summary

• IRS is a product to hedge interest rate risk (long-term interest rate changes)

• IRS may be agreed upon without any existing underlying original transaction (e.g. loan or deposit)

• Fixed interest rate swap buyer is a transacting party seeking protection against increasing interest rates

in the future

• Fixed interest rate swap seller is a transacting party seeking protection against decreasing interest rates

in the future.

Documentation

• Signed Framework Agreement

Interest Rate Derivatives

Contact Persons

Milan Chúpek +421 2 5055 9500 mchupek@vub.sk

Viera Bialková +421 2 5055 9510 vbialkova@vub.sk

Tomáš Kraus +421 2 5055 9595 tkraus@vub.sk

František Stacho +421 2 5055 9520 fstacho@vub.sk

Capital Market

Analytical Reports

Currency Options

28


Cross Currency Swap (CCS)

Product Characteristics

A cross currency swap is a special type of interest rate swap. It is used in situations when the underlying

transaction (e.g. loan) to be hedged is denominated in other than the local currency (e.g. EUR). Cross

currency swap means an agreement of two transacting parties to exchange future interest payment cash

flow streams. Unlike with the standard interest rate swap, the principal amounts and the interest payments

are denominated in two different currencies, and therefore not only the interest payments but also

the principal cash flows are swapped.

CC Swap consists of the following two transactions:

1. Interest swap, whereby interest rate payments are swapped

PARTY A

2. Currency swap, whereby notional amounts or principal amounts are swapped at the beginning and

end of a specified exchange rate (e.g.41 SKK/1EUR), while the beginning payment streams may be

skipped.

Swap at the beginning of the deal

PARTY A

Swap at the end of the deal

PARTY A

CCS: Requirements and Transaction Characteristics

Notional amount

Currency

Exchange rate

Reference rate

Maturity

Fixed interest rate

Starting date

Interest method

Business conventions

Fixed interest rate in SKK

6M EURIBOR in EUR

410 Mio SKK

10 Mio EUR

410 Mio SKK

10 Mio EUR

min. 50 Mio SKK, or other currency equivalent

SKK, EUR, USD, and others

at the end or beginning of the deal

BRIBOR, or relevant reference rate for other currency

1 to 10 years, or longer

negotiable, calculated to reflect current market situation

spot start, or forward start

act/360, 30/360, act/act, etc.

method of treating holidays (e.g. modified following)

Interest payments are calculated over the notional amounts in the same currency. Similar to IRS, this

notional amount may be changed over the lifetime of the swap.

29

PARTY B

PARTY B

PARTY B

FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Foreign Exchange rate – spot rate, current at the moment of the deal. It is applied for currency swaps at

the beginning and end of the deal. However, other exchange rates may be agreed upon as well.

Money Market

Structured Products

Interest Rate Derivatives

For SKK deals, BRIBOR (BRatislava InterBank Offered Rate) is used as a reference rate, i.e. the interest

rate fixed by 11.00 a.m. every business day. Contracts denominated in EUR use EURIBOR, for contracts

denominated in CZK, PRIBOR applies, and for other currencies, LIBOR is used as a reference rate.

Pricing

Similar to IRS, the CCS price is specified at a level at which the present value of cash flows of one ”leg”

of the swap equals the present value of cash flows from the second ”leg” of the swap at a specified

exchange rate. The price is therefore dependant on the implied forward interest rates for the individual

currency and the foreign exchange rate.

Sample Use of a Liability-based Cross Currency Swap

ALFA, Ltd. receives from its parent company a 10 Mio EUR loan for six years, paying an interest rate on a 6M

EURIBOR basis. These funds must be converted into local currency (SKK) to finance a local investment. The

loan will be repaid in one lump sum at the end of the period. The company is afraid of a potential increase

in EUR interest rates in the future, and it also cannot exclude a possible local currency devaluation against

the EUR. It would therefore like to hedge the risk of increased cost. It decides to agree on an interest rate

swap with the bank, whereby it pays a fixed interest rate of 4.60 % in SKK during the life of the loan and it

receives from the bank 6M EURIBOR in EUR. At the beginning of the transaction, it sells 10 Mio EUR to the

bank, for which it receives 410 Mio SKK from the bank. At the end of the transaction, the mirror payments

are exchanged. With this, the company has an effective hedge of interest rate risk, and at the same time, as

of today, it knows its cost of borrowing.

Swap at the beginning of the deal at the FX rate of 41.00

10 Mio EUR

410 Mio SKK

ALFA, Ltd.

10 Mio EUR

LOAN

Interest payments exchanged during the life of the swap

Currency Options

Fixed rate

4.60 % in SKK

6M EURIBOR in EUR

ALFA, Ltd.

6M EURIBOR in EUR

LOAN

Swap at the end of the deal at the exchange rate of 41.00 SKK for 1 EUR

Capital Market

10 Mio EUR

410 Mio SKK

ALFA, Ltd.

10 Mio EUR

LOAN

Analytical Reports

30


Summary

• CCS is a product to hedge long-term FX risk and interest rate risk of foreign currencies (long-term

interest rate changes).

• CCS may be used to change an international loan into a synthetic fixed rate loan in local currency

• Cross currency swap is also independent of the underlying transaction – i.e. the original foreign

currency loan may be taken from another bank.

Documentation

• Signed Framework Agreement

Contact Persons

Milan Chúpek +421 2 5055 9500 mchupek@vub.sk

Viera Bialková +421 2 5055 9510 vbialkova@vub.sk

Tomáš Kraus +421 2 5055 9595 tkraus@vub.sk

František Stacho +421 2 5055 9520 fstacho@vub.sk

31

FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Money Market

Cap

Product Characteristics

A cap serves the purpose of hedging interest rate risk by making a maximum reference rate level guarantee

(e.g. BRIBOR for a long-term loan). At the same time, it does not exclude the possibility of benefitting

from favorable interest rate movements (interest rate decrease).

A cap consists of a number of interest rate options (so-called ‘caplets’). A Caplet is a Call option on

a reference rate. If, on the specified date (two business days prior the start date of the specified period),

the reference rate is above the maximum specified level (so-called ‘strike’), the buyer of the option

receives a netting payment equal to the difference between the reference rate and the ‘strike’ rate. An

interest rate Cap can be achieved by a simultaneous purchase of a number of options (caplets) with the

same ‘strike’. For this right, however, the buyer must pay a price, a so-called ‘premium’.

Structured Products

0

profit

Cap premium

Strike e.g.

7 %

CAP

BRIBOR, or other reference rate

loss

Interest Rate Derivatives

Currency Options

Capital Market

Unlike a Cap buyer, who wants to hedge the interest rate risk, a cap seller only wants to earn the option

premium.

Cap: Requirements and Transaction Characteristics

Notional amount

Currency

Reference rate

Maturity

Strike

Premium

Starting date

Interest method

min. 50 Mio SKK, or other currency equivalent

SKK, EUR, USD, and others

BRIBOR or relevant reference rate for other currency

1 to 10 years, or longer

maximum level of reference rate – negotiable

price of the Cap – payable immediately after the deal is made

spot start, or forward start

act/360, 30/360, act/act, and other

The notional amount of the deal is the amount of principal on which the interest streams are calculated.

This notional amount may remain constant over the life of the Cap, or it may be variably changed and

adjusted, similar to an IRS.

For SKK deals, BRIBOR (BRatislava InterBank Offered Rate) is used as a reference rate, i.e. the interest

rate fixed by 11.00 a.m. every business day. Contracts denominated in EUR use EURIBOR, for contracts

denominated in CZK, PRIBOR applies, and for other main currencies, LIBOR is used as a reference

rate.

Analytical Reports

32


Pricing

The value of a Cap is calculated in a way similar to the value calculation of other options, i.e. it

consists of so-called time value and intrinsic value of an option. The time value of an option depends on

market expectations regarding the developments of future interest rates over time. Volatility determines the

probability of interest rate changes in time. If the market expects big changes in interest rates during the

life of an option (high volatility), the value of the option will be much higher compared to a situation of small

changes expected (low volatility). With time, expiration of the option progressing the impact of volatility on

the value of the Cap decreases.

The intrinsic value of an option is determined by comparing the strike rate with the implied forward interest

rate:

• a Cap with a strike rate higher than the implied forward interest rate has zero intrinsic value (being

referred to as OUT OF THE MONEY),

• a Cap with a strike rate lower than the implied forward interest rate has a positive intrinsic value (being

referred to as IN THE MONEY),

• a Cap with a strike rate equal to the implied forward interest rate is referred to as AT THE MONEY

FORWARD (ATMF), and

• a Cap with a strike rate equal to the current, spot reference rate level (e.g. BRIBOR) is referred to as

AT THE MONEY SPOT

The above indicates the following – the higher the intrinsic value, the higher the price of a Cap.

Sample Use of an Asset-based Interest Rate Cap

For its long-term investment purposes, ALFA, Ltd. borrows SKK for four years at the interest rate on the

basis of 6M BRIBOR, with semi-annual interest payments. The company is concerned with a potential

increase in interest rates during the 2 – 4th year of the loan; however, it does not exclude a possible

decrease in interest rates. It would like to hedge the risk of increasing cost, while at the same time being

able to benefit from a potential decrease or stable development of interest rates, thus reducing its cost.

Therefore, it decides to purchase an interest rate Cap from the bank, fixing a maximum interest rate

payable, BRIBOR of 7.5 %, during the 2 – 4th year of the loan (so-called forward start), for which it has

to pay a premium to the Bank.

Upfront

Premium

If 6M BRIBOR > 7.5% then Bank

makes netting payments (2-4year only)

ALFA, Ltd.

During the 2-4th year, if interest rates go above and beyond the level of 7.5 %, the company receives

netting payments from the bank, so its maximum loan-related interest rate cost, or burden, is only 7.5 %.

If interest rates go down, the company may enjoy unlimited benefits of these favorable developments.

By entering a Cap, the company has hedged its interest rate risk and, at the same time, it has preserved

its possibility to participate in and enjoy the benefits of low interest rates.

33

6M BRIBOR

LOAN

FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Cap: transaction flows in time, company perspective

1st netting

payment

2nd netting

payment

Last netting

payment

Money Market

Cap

entered into

1st year not hedged

1st

fixing

1st period

2nd

fixing

2nd period

3rd

fixing

Last fixing

Last period

Structured Products

Summary

• Cap is a product serving the purpose of hedging interest rate risk (increase of interest rates in the

future)

• Buyer of a Cap must pay a premium for having the interest rate risk limited

• Seller of a Cap is exposed to unlimited risk, therefore Cap belongs to interest rate derivatives with

asymmetric risk profiles

• Cap may also be entered into without any underlying transaction (e.g. a loan).

Documentation

• Signed Framework Agreement

Interest Rate Derivatives

Contact Persons

Milan Chúpek +421 2 5055 9500 mchupek@vub.sk

Viera Bialková +421 2 5055 9510 vbialkova@vub.sk

Tomáš Kraus +421 2 5055 9595 tkraus@vub.sk

František Stacho +421 2 5055 9520 fstacho@vub.sk

Capital Market

Analytical Reports

Currency Options

34


Floor

Product Characteristics

A floor is a mirror to a Cap, and it serves the purpose of hedging interest rate risk (protecting against

a decrease in interest rates) by making a minimum reference rate level guarantee (e.g. BRIBOR for a longterm

deposit). At the same time, it does not exclude the possibility of benefiting from favorable interest

rate movements (increase in interest rates).

A floor consists of a number of interest rate options (so-called ‘floorlets’). A Floorlet is a Put option on

a reference rate. If, on the specified date (two business days prior to the start date of the specified

period), the reference rate is below the minimum specified level (so – called ‘strike’), the buyer of the

option receives a netting payment equal to the difference between the reference rate and the ‘strike’ rate.

A simultaneous purchase of a number of options (floorlets) with the same ‘strike’ results in an interest rate

Floor. For this right, however, the buyer must pay a price, a so-called ‘premium’.

0

profit

loss

FLOOR

Unlike a Floor buyer, who wants to hedge the interest rate risk, a Floor seller is mainly interested only in

earning the option premium.

Floor: Requirements and Transaction Characteristics

Notional amount

Currency

Reference rate

Maturity

Strike

Premium

Starting date

Interest method

Strike e.g.

5,5 %

Floor premium

min. 50 Mio SKK, or other currency equivalent

SKK, EUR, USD, and others

BRIBOR, or relevant reference rate for other currency

1 to 10 years, or longer

maximum reference rate limit – negotiable

price of the Floor – payable immediately after the deal is made

spot start, or forward start

act/360, 30/360, act/act, and other.

The notional amount of the deal is the amount of principal on which the interest streams are calculated. This

notional amount may remain constant over the life of the Cap, or it may be variably changed and adjusted, similar

to an IRS.

For SKK deals, BRIBOR (Bratislava InterBank Offered Rate) is used as a reference rate, i.e. the interest rate fixed

by 11.00 a.m. every business day. Contracts denominated in EUR use EURIBOR, for contracts denominated in

CZK, PRIBOR applies, and for other main currencies, LIBOR is used as a reference rate.

Pricing

The value of a Floor is calculated in a way similar to the value calculation of other options, i.e. it consists of socalled

time value and intrinsic value of an option. The time value of an option depends on market expectations

regarding the developments of future interest rates over time. Volatility determines the probability of interest rate

changes in time. If the market expects big changes in interest rates during the life of an option (high volatility), the

value of the option will be much higher compared to a situation of small changes expected (low volatility). With

time, expiration of the option progressing the impact of volatility on the value of the Floor decreases.

35

BRIBOR, or other reference rate

FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Money Market

The intrinsic value of an option is determined by comparing the strike rate with the implied forward interest

rate:

• a Floor with a strike rate below the implied forward interest rate has zero intrinsic value (being referred to as

OUT OF THE MONEY),

• a Floor with a strike rate above the implied forward interest rate has a positive intrinsic value (being referred

to as IN THE MONEY),

• a Floor with a strike rate equal to the implied forward interest rate is referred to as AT THE MONEY

FORWARD, and

• a Floor with a strike rate equal to the current, spot reference rate level (e.g. BRIBOR) is referred to as AT

THE MONEY SPOT

The above indicates the following – the higher the intrinsic value, the higher the price of a Floor.

Structured Products

Sample Use of an Asset-based Interest Rate Floor

ALFA, Ltd. had surplus funds available for four years for which it bought an SKK bond yielding a 6m

BRIBOR based rate, interest payable semi-annually. The company is concerned with a potential decrease in

interest rates; however, it would like to participate in and enjoy the benefits of unchanged interest rates. The

company would like to hedge this risk of reducing its revenues, while at the same time being able to benefit from

a favorable development in interest rates, thus maximizing its income. Therefore, it decides to purchase an

interest rate Floor from the bank, fixing a minimum BRIBOR rate of 5.5 % to be received over the entire four

year period, for which it has to pay a premium to the Bank.

Analytical Reports

Capital Market Currency Options Interest Rate Derivatives

Upfront

Premium

If 6M BRIBOR < 5.5 %, then the Bank

makes netting payments

If interest rates go below the level of 5.5 %, the company receives netting payments from the bank, so its

minimum bond-related interest income is always 5.5 %. If interest rates go up, the company may enjoy an

unlimited benefit of these favorable developments. By entering a Floor, the company has hedged its interest

rate risk and, at the same time, it has preserved its possibility to participate in and enjoy the benefits of higher

interest rates.

Summary

• Floor is a product serving the purpose of hedging interest rate risk (decrease of interest rates in the future)

• A Floor may also be entered into without any underlying transaction (e.g. a deposit)

• Buyer of a Floor must pay a premium for having the interest rate risk limited

• Seller of a Floor is exposed to unlimited risk; therefore, Floor belongs to interest rate derivatives with

asymmetric risk profiles

Documentation

• Signed Framework Agreement

ALFA, Ltd.

Contact Persons

Milan Chúpek +421 2 5055 9500 mchupek@vub.sk

Viera Bialková +421 2 5055 9510 vbialkova@vub.sk

Tomáš Kraus +421 2 5055 9595 tkraus@vub.sk

František Stacho +421 2 5055 9520 fstacho@vub.sk

36

6M BRIOR

BOND


Hedging Strategies Using Caps and Floors

Collar – Product Characteristics

A Collar is a combination of a Cap and a Floor, and it serves the purpose of hedging interest rate risk by

fixing a maximum or minimum level of a reference rate. At the same time, it does not exclude the possibility

to benefit from favorable interest rate movements. However, unlike with cap only or floor only, this

possibility is limited by the specified level.

Liability-based Collar

In this case, the cost of buying a Cap (with strike at 7 %) is reduced by a simultaneous sale of a Floor (with

strike at 5 %). If costs are reduced completely, it is a so-called zero cost collar (the buyer does not pay any

premium).

0

Unlike with a Cap only, with a Collar, the buyer of a Cap cannot participate in and enjoy the benefit of

unlimited interest rate decreases, but only to the level of the Floor sold (to 5%inthis example). It means

that the cost of borrowing will be in the range of 5%-7%.

Asset-based Collar

In this case, the cost of buying a Floor (with strike at 5 %) is reduced by a simultaneous sale of a Cap

(with strike at 8.5 %). If costs are reduced completely, it is a so-called zero cost collar (the buyer does

not pay a premium).

0

profit

loss

profit

Buying

a Floor Collar

loss

Floor 5 %

Floor 5 %

Cost reduction

Cap 7 %

Collar

Cost reduction

Cap 8,5 %

BRIBOR, or other reference rate

Unlike with a Floor only, with a Collar, the buyer of a Floor cannot participate in and enjoy the benefit of

unlimited interest rate increases, but only to the level of the Cap sold (to 8.5 % in this example). It means

that the earnings of the deposit will be in the range of 5%-8.5%.

37

Buying a Cap

Selling a Floor

BRIBOR, or other reference rate

Selling a Cap

FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Money Market

Structured Products

Participating Cap

(Similar to Liability-based Collar), a Participating Cap means to purchase a Cap and at the same time to

sell a Floor, while the Floor is sold at a smaller notional amount. This strategy provides for reduction of the

premium cost of a Cap, while not limiting the possibility to participate and enjoy the benefit of decreasing

interest rates (obviously, only with respect to the specified notional amount of the Floor).

0

profit

loss

Floor 5 %

Participatoring

Cap

Cap 7 %

Cost reduction

Buying

a Cap

Selling Floor on notional

amount lower than Cap

BRIBOR, or other reference rate

Participating Floor

(Similar to Asset-based Collar) a Participating Floor means to purchase a Floor and at the same time to

sell a Cap, while the Cap is sold on a smaller notional amount. This strategy provides for reduction of the

premium cost of a Floor, while not limiting the possibility to participate and enjoy the benefit of increasing

interest rates (obviously, only with respect to the specified notional amount of the Cap).

Interest Rate Derivatives

0

profit

Buying

a Floor

loss

Participatoring

Floor

Floor 5 %

Cost reduction

Cap 8,5 %

BRIBOR, or other reference rate

Selling Cap for notional

amount lower than Floor

Currency Options

Capital Market

Analytical Reports

Corridor (reducing the premium cost of a Cap/Floor)

The premium cost of buying a Cap is reduced to a certain extent by a simultaneous sale of a Cap with

a higher strike level. This strategy allows for the reduction of the premium cost of buying the 1st Cap. A

band (so-called Corridor) is created between strike levels of individual caps within which the interest rates

are fully hedged. In case of interest rates going above and beyond the level of the 2nd Cap, the hedging

is reduced. A mirror strategy may be also used to reduce the premium cost of buying a Floor.

Contingent Premium Cap/Floor

Unlike a regular Cap, in this case no premium is paid at the purchase of a Cap. The premium is payable

only if the fixed interest rate is higher than the specified strike rate. The Cap consists of a Cap purchase

and a simultaneous sale of a number of digital options equal to the number of Caplets with the same

strike. The premium earned by selling the digital options compensates for the cost of the Cap. It means

that unused Caplets do not have to be paid for. However, if a Caplet is exercised, a premium must be

paid, and this premium is higher than a standard premium, i.e. the interest rates are hedged from higher

levels only.

38


Swaption (Swap Option)

Product Characteristics

Swaption is an option on an interest rate swap. The buyer is provided with the right, within an agreed

upon period, to enter into an Interest Rate Swap with a fixed rate equal to the option strike rate. For this

right, they must pay a premium to the seller. When the option is exercised, the seller must either enter into

the agreed swap, or pay a netting payment equal to the market value of the underlying swap.

Swaption: Requirements and Transaction Characteristics

Type of option

Strike

Premium

Maturity

Swap features

payer or receiver

fixed rate level – negotiable

price of the swaption –payable after the deal is made

1 to 10 years

underlying interest rate swap must be defined (see IRS)

Types of the option – following are two types of swaptions:

• Payer swaption – Buyer of the option is provided with the right to pay a fixed interest rate on the

underlying IRS

0

The higher the current spot swap rate on the option exercise date compared to the strike, the higher the

swaption payoff. A swaption is similar to the purchase of a Call option.

• Receiver swaption – Buyer of the option is provided with the right to receive a fixed interest rate on the

underlying IRS

0

profit

loss

profit Receiver swaption

loss

Payer swaption

Option premium

Strike e.g.

6 %

Strike e.g.

6 %

Option premium

The lower the current spot swap rate on the swaption exercise date compared to the strike, the higher

the swaption payoff. A swaption is similar to the purchase of a Put option.

39

Interest rate on the underlying

swap on option exercise date

Interest rate on the underlying

swap on option exrecise date

FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


Analytical Reports

Capital Market Currency Options Interest Rate Derivatives

Structured Products

Money Market

FX Transactions

Swaption: transaction flows in time

Beginning

of option

Swaption

entered into

Pricing

The following rules apply to Swaption pricing:

• Higher interest rate volatility with IRS means a higher premium;

• Time value of an option increases the premium (the longer the option time period, the higher the premium);

• With receiver swaptions, the strikes at lower rates are cheaper than strikes at higher rates; the opposite

applies to payer swaptions.

Sample Use of a Payer Swaption

ALFA, Ltd. takes part in a competitive tender. In the case of winning the tender, a number of long-term investments

totaling 1 billion SKK is needed to be financed by a 6M BRIBOR based variable interest rate loan. The total investment

period is five years, starting in two years time due to the demanding project documentation work required.

Because of the method of financing, the company is exposed to interest rate risk (increase in interest rates). The

company may eliminate the risk by entering into an interest rate swap – receiving a 6M BRIBOR based variable

interest rate and paying a fixed interest rate throughout the life of the loan. At the moment of participating in the

competitive tender, the company cannot know the winner. By entering into an interest rate swap, in case of its failure

in the tender, the company would be exposed to the risk of an open swap position (swap existing without the

loan, i.e. not a hedging but a speculation).

In such a case, it is advised to use a two year Swaption which, if bought, gives the company the right to enter into

the above-specified swap in two years time. For this right, the company pays a premium. However, this premium

is lower than the premium of a Cap, for example:

Upfront premium

for a swaption

with strike at 5 %

6M BRIBOR interest payments from the swap fully cover the cost of loan-related interest payments to be

made by the company. The effect of this is the company eliminates its interest rate risk and, at the same

time, as of today it knows its future cost of borrowing.

Documentation

• Signed Framework Agreement

Option

exercised

Beginning

of a swap

Contact Persons

Milan Chúpek +421 2 5055 9500 mchupek@vub.sk

Viera Bialková +421 2 5055 9510 vbialkova@vub.sk

Tomáš Kraus +421 2 5055 9595 tkraus@vub.sk

František Stacho +421 2 5055 9520 fstacho@vub.sk

40

time

End of

a swap

If swaption is exercised, there is a two year interest rate swap covering the entire life of the loan

5 % fixed rate

6M EURIBOR

ALFA, Ltd.

ALFA, Ltd.

6M EURIBOR

LOAN


Currency Options

Currency Options


Currency Options


Currency

Options

Currency Options (1st Generation Options)

Product Characteristics

A Currency Option gives the buyer the right to buy or sell a specified amount of one currency for another currency

at an agreed exchange rate at a specified future date. The buyer of the option has therefore a right, but not

an obligation (unlike the seller), to exercise the agreed upon deal. For this right, an option premium is paid.

Currency Options: Requirements and Transaction Characteristics

The transacting parties, when entering into a currency option contract, must agree to the following features

of an option:

Contract size

Underlying asset

Strike price

Type of deal

Type of option

Maturity

Type of option

Price of option

min. 500 thousand EUR, or other currency equivalent

currency pairs EUR/SKK, USD/SKK, EUR/USD, etc.

as agreed by counterparties

buying or selling an option

call or put option

from 1 day to 2 years

European or American option

Option Premium

”Strike” price, or exercise price, means the level of exchange rate between individual currencies.

A financial market trader may take two types of positions: Buying an option, i.e. a long position – a long

option, or selling an option, i.e. a short position – a short option. Potential loss from a long option position

is limited to the amount of the premium paid, while maximum profit potential is unlimited. On the other

hand, the maximum profit potential of a short option position is limited to the amount of the premium

collected, while the potential loss is unlimited (option is a product of asymmetric risk profile).

There are two principal types of options, Call and Put.

Buyer of the option has

Seller of the option has

Call option

the right to buy

the obligation to sell

43

Put option

the right to sell

the obligation to buy

FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Call option

Money Market

A Call option serves the purpose of hedging exchange rate risk (FX rate going up) by fixing the maximum

cost of buying the base currency. At the same time, it does not exclude the possibility of benefiting from a

favorable exchange rate development (FX going down).

A Call option gives its buyer the right to buy the currency specified in exchange for another currency at the

exercise price on the exercise date. A Call option is exercised only if the spot exchange rate is higher than

the exercise price of the option at its expiration date. In the opposite situation, it is not worth it to exercise

the option, as the buyer may satisfy their needs at better rates (lower FX rate) by going to the spot market.

Structured Products

Purchase of an option does not have to serve the purpose of hedging an underlying transaction only; it may

also serve as a way of increasing profits. By exercising a Call option, for example, a buyer may buy one

currency in exchange for another currency at a strike price and, at the same time, go to the spot market and

sell it at a higher rate. The difference between the exercise price (including the option premium paid) and

current spot rate represents profit for the option holder. If the FX rate does not reach the strike level, the

option premium paid remains the only cost of the option deal.

Buying a Call Option: Payoff Possibilities

profit

LONG CALL

Interest Rate Derivatives

Currency Options

0

loss

The Option seller is in a mirror position. If the spot rate is higher than the option strike rate when an option

is exercised, the seller of an option must sell the base currency at a rate lower than the rate they could

get on the spot market, or the rate they paid when buying the currency spot. However, if the spot rate

does not reach the strike value, the option writer makes a profit equal to the option premium collected.

Increasing FX rates result in losses incurred by Call option writers.

Selling a Call Option: Payoff Possibilities

profit

Option premium

Strike

Foreign Exchange rate

Capital Market

0

Option premium

Strike

Foreign Exchange rate

loss

SHORT CALL

Analytical Reports

44


Sample Use of a Call Option:

ALFA, Ltd. imports electronics goods from Germany. Every month it pays 1 mio EUR for the goods.

However, it reports its revenues in SKK. When calculating the price for its customers, the company uses

the FX rate of 41.500. Due to its concerns with the SKK devaluing against the EUR, the company wants

protection against such an unfavorable development. In case of opposite developments (SKK revaluing),

it wants to preserve the possibility of benefiting from the favorable FX rate movements. ALFA therefore

buys a Call option with a one month maturity and a strike price of 41.500. For this option, ALFA pays an

option premium of 150.000 SKK.

30 days later (option expiration date), one of the two following situations may occur:

• The Slovak currency really depreciates, reaching the level of 42 SKK/1EUR. ALFA exercises the option

and buys 1 Mio EUR at the FX rate of 41.500. The company paid 150.000 for the option, i.e. its total cost

of buying 1 Mio EUR is 41.650.000 SKK, meaning a savings of 350.000 SKK compared to the current

spot rate.

• In the opposite situation, if the SKK does not depreciate against the EUR, but appreciates and the FX

rate goes below 41.500 SKK/1EUR to the level of 41.000. The company does not exercise its option and

lets it expire unrealized. It buys the EUR needed on the spot market at the then current rate. Its total cost

of 41.150.000 for buying 1 Mio EUR consists of the actual exchange of SKK to EUR (41.000.000 SKK)

and the option premium paid (150.000 SKK).

Put Option

A Put option serves the purpose of hedging exchange rate risk (FX rate going down) by fixing a minimum

cost of selling the base currency. At the same time, it does not exclude the possibility of benefiting from

a favorable exchange rate development (FX going up).

A Put option gives its buyer the right to sell the currency specified in exchange for another currency at the

exercise price on the exercise date. A Put option is exercised only if the spot exchange rate is below the

exercise price of the option on the exercise date. In the opposite situation, it is possible to go to a spot

market and make a better deal on rates, i.e. sell the base currency at a higher FX rate.

The possibilities of making a profit or incurring a loss are available here the same way as with call options.

A Put option buyer may go to the spot market to buy the base currency at a better rate and then use

the option to sell it at a higher rate. The difference between the current spot rate and the exercise price

(reduced by the option premium paid) represents profit for the option buyer. If the spot FX rate, however,

is below the strike level of the option, the option premium paid remains the only cost of the option deal.

It means that FX rates going down result in making a profit.

45

FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Buying a Put Option: Payoff Possibilities

profit

LONG PUT

Money Market

0

Strike

Option premium

Foreign Exchange rate

loss

Structured Products

The Put option writer is in a mirror position. If the spot rate is below the option strike rate when an option

is exercised, the seller of an option must pay for the base currency more than they would pay for it when

buying the currency spot. However, only if the spot rate is higher than the strike value, the option writer

makes a profit equal to the option premium collected. A Decrease in the FX rate market results in losses

incurred by Put option writers.

Writing a Put Option: Payoff Possibilities

profit

Strike

Interest Rate Derivatives

Currency Options

Capital Market

0

loss

SHORT PUT

Option premium

Foreign Exchange rate

Sample Use of a Put Option:

ALFA, Ltd. purchases a short-term security denominated in USD in the amount of 1 Mio USD with

a six month maturity. The company is concerned that a potential appreciation of SKK below the level of 36

Koruna for USD could wipe out a substantial part of its earnings made on the security. It therefore wants

protection against the FX rate decrease. It buys a Put option with a strike price at 36 SKK/1USD, maturity

of six months, in the amount of 1 Mio USD, and pays for it an option premium of 200.000 SKK.

Six months later, the assumptions of the company come true and the USD FX rate devalues to the level

of 35.500. The company, therefore, exercises its option and converts the dollars collected into SKK at

the FX rate of 36 SKK for 1 USD. Compared to the current spot FX rate, it earns 500.000 Koruna, which

must be reduced by the amount of the option premium paid, resulting in the overall net profit of 300.000

Koruna compared to the current spot rate.

Analytical Reports

46


Types of options

Two types of options may be traded in financial markets – American and European style.

The type of option determines the time of its possible exercise.

• European option – may be exercised at the end of the option, i.e. at the specified future date only

(option expiration date).

It is currently the most frequently traded type of option.

• American option – may be exercised at any time during the option validity period.

• Bermuda option – is a combination of an American and European type of option – it may be exercised

on a given number of days during the entire period.

With each option exercise right, either effective delivery or a cash settlement may be agreed upon. An

effective delivery means physical delivery and exchange of one currency for another at the exercise

price. With a cash settlement only, a netting payment is made equal to the amount of payoff to be

achieved by effective delivery.

Options Pricing

The value of an option consists of two principal components – a time value and an intrinsic value.

• The time value of an option depends on market expectations regarding the developments of future

exchange rates over time. Volatility determines the probability of the FX rate changes in time. If the

market expects big changes in FX rates during the life of an option (high volatility), the value of the

option will be much higher compared to a situation of small changes expected (low volatility). With time

to expiration of the option progressing, the impact of volatility on the value of the option decreases.

• The intrinsic value of an option consists of the difference between the forward rate and the strike price.

As the option premium (option price) is usually higher than its intrinsic value, this difference is characterized

as the time value.

Example:

ALFA, Ltd. buys a Call option for 1 Mio EUR with a maturity of two months and strike price of 41.550 SKK/1

EUR. For this option, it pays an option premium of 200.000 SKK. The current spot FX rate is 41.600 SKK/

EUR. The intrinsic value, therefore, is 50.000 SKK, i.e. the difference between the spot FX rate and the strike

rate calculated for the total contract size (41.600 x 1.000.000 – 41.550 x 1.000.000 = 50.000 SKK). The difference

between the option premium and the intrinsic value (200.000 SKK – 50.000 SKK) is the time value of

the option (150.000 SKK).

Options with positive intrinsic value are referred to as ‘ITM’, or ”in – the – money” options. If the strike price

equals the spot rate, the intrinsic value is zero and options with this characteristics are referred to as ‘ATM’,

or ”at – the – money” options. If an option is neither ITM nor ATM, it is referred to as ‘OTM’, or ”out – of – the

– money” option.

Options dealing pre-requisites

• Signed Framework Agreement

Contact Persons

Milan Chúpek +421 2 5055 9500 mchupek@vub.sk

Viera Bialková +421 2 5055 9510 vbialkova@vub.sk

Tomáš Kraus +421 2 5055 9595 tkraus@vub.sk

František Stacho +421 2 5055 9520 fstacho@vub.sk

47

FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Money Market

Barrier options (2nd generation options)

With barrier options, in addition to the strike, or exercise price, another limit (barrier) is agreed upon. With

a barrier call option, the barrier is usually above the strike level, while with a barrier put option, the barrier

is below the strike. With barrier options we distinguish Knock – In and Knock – Out options.

Barrier Call

a) Knock-out

If the spot rate is higher than the Knock-Out level at the option expiration date, the buyer loses the option

right (‘up and out’). Only if the spot rate is below the barrier may the buyer exercise the option at the strike

rate. The American option type is used, i.e. the barrier is valid throughout the life of the option.

Structured Products

0

profit

Strike

Barrier

Foreign Exchange rate

loss

Interest Rate Derivatives

b) Knock-in

If the spot rate is below the Knock-In level at the option expiration date, the buyer has no right to exercise

its option. Only if the spot rate is higher than the barrier on the option expiration date may the buyer

exercise the option at the strike rate (‘up and in’). The American option type is used, i.e. the barrier is valid

throughout the life of the option.

profit

Barrier

Currency Options

0

Strike

Foreign Exchange rate

loss

Capital Market

Analytical Reports

48


Sample Use of a Call Knock – In Option:

ALFA, Ltd. needs to buy 100 Mio CZK in two months time and does not want to pay more than 1.3100

SKK for 1 CZK. As it assumes SKK depreciation against the CZK, it decides to hedge this FX risk. The

Interbank spot market rate is at 1.3070 levels. A plain Vanilla Call option is too expensive for ALFA and, as

it expects a substantial appreciation of the Czech Koruna, it sets an American type Knock – In Barrier at

1.3200. For this option, it pays 50.000 SKK, which is half of the plain vanilla option price, and so reduces

its cost of hedging.

During the life of the option, the expectations of the company are confirmed – the SKK starts devaluing.

It goes down to 1.3250. Breaking the barrier of 1.3200, the option becomes automatically valid. On the

option expiration date (in two months time), the FX rate is corrected to 1.3180. However, ALFA still may

exercise its valid option and buy the Czech Koruna at the strike price, i.e. at 1.3100.

If the CZK/SKK exchange rate does not break the level of 1.3200 during the life of the option, and it ends

up above the strike level, the company cannot exercise the option, as the barrier of 1.3200 was not broken

and the option never became effective.

Barrier Put

a) Knock-Out

If the spot rate is lower than the Knock-Out level at the option expiration date, the buyer loses the option

right (‘down and out’). Only if the spot rate is above the barrier may the buyer sell the base currency at

the strike rate. The American option type is also used, i.e. the barrier is valid throughout the life of the

option.

profit

0

b) Knock-In

If the spot rate is higher than the Knock-In level at the option expiration date, the buyer has no right to

exercise the option. Only if the spot rate is higher than the barrier on the option expiration date may the

buyer exercise the option at the strike rate (‘down and in’). The American option type is also used, i.e.

the barrier is valid throughout the life of the option.

0

loss

profit

loss

Barrier

Barrier

Strike

Strike

49

Foreign Exchange rate

Foreign Exchange rate

FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Money Market

Sample Use of a Put Knock – Out Option:

ALFA, Ltd. won a contract for household appliances exports to Poland. According to the contract, the

partner is supposed to pay for the goods delivered in PLN, with a three month credit period. Due to

the fact that most of the company cost is incurred in SKK, it is made to convert 5 Mio Zloty into SKK.

However, it expects the PLN to appreciate slightly during the receivable credit period, squeezing its production

margin. It decides to fix the current spot rate (1 PLN = 9.500 SKK) via an option with this strike

price. Having calculated the price, it realizes that the option premium is too high and tries to find a way

of reducing the cost. As it assumes the SKK against PLN exchange rate will not reach the level of 9.400,

it sets this level as a Knock – Out limit, thus pushing down the cost of the option by two-thirds, reducing

it to the acceptable price of 100.000 SKK to be paid for this put option.

Structured Products

Interest Rate Derivatives

The assumptions of the company were confirmed – during the life of the Knock – Out option the PLN

appreciated, achieving the level of 9.420 SKK. As the 9.400 barrier was not broken, the option was not

‘knocked out’, and the customer exercised it on the expiration date, i.e. they sold PLN at the strike rate

of 9.500. ALFA thus hedged a favorable exchange rate at a relatively low cost and with acceptable risk

exposure.

With a clear opinion on the spot rate development, the traders frequently buy barrier options, as

they are cheaper than standard options. The closer the Knock – Out level to the strike price, the

cheaper the option. However, the risk is higher of the option being ‘Knocked-Out’, i.e. expire unexercised.

With Knock – In options, the price is reduced and the risk of the option expiring unexercised

increases with increased distance between the Knock-In barrier and the strike price levels.

Documentation

• Signed Framework Agreement

Contact Persons

Milan Chúpek +421 2 5055 9500 mchupek@vub.sk

Viera Bialková +421 2 5055 9510 vbialkova@vub.sk

Tomáš Kraus +421 2 5055 9595 tkraus@vub.sk

František Stacho +421 2 5055 9520 fstacho@vub.sk

Capital Market

Analytical Reports

Currency Options

50


Digital Options (Binary options)

Product Characteristics

Digital options make it possible to receive an agreed upon fixed amount, providing the spot rate is higher

than the strike rate on the exercise date. The amount itself is fully independent from the spot rate.

0

profit

loss

Strike

Digital options are used mainly as supplementary components of option structures in combination with

barrier and plain-vanilla options. As a principle, a digital option price is much lower than a standard option

price.

Pricing

The following principles apply to pricing:

• Higher volatility means higher premiums

• Time value of an option increases the premium (the longer the time to maturity, the higher the premium)

Sample Use of a Digital Option

ALFA, Ltd. wants to hedge its purchase of 1 Mio EUR in one month's time. It is concerned with the

SKK devaluing from the current rate of 41.200. It would like to hedge the purchase by using an option.

However, it is willing to pay the option premium only if the option can be exercised. In such a case, it

does not mind paying a premium higher than a premium of a standard plain-vanilla option. It decides to

buy a plain vanilla call option with strike at 41.300 for the price of 150.000 SKK, and at the same time sell

a digital option with the same strike at 41.300, also for 150.000 SKK. If the strike of 41.300 is reached,

ALFA is obliged to pay 250.000 SKK from its digital option.

If the rate is higher than the strike of 41.300 on the option expiration date, the company must pay

250.000 SKK from the digital option, but at the same time it may exercise its CALL option. In the opposite

situation, it cannot exercise the CALL option, but it does not have to pay the contingent digital premium.

This means that the option was free of charge. The company pays for the CALL option only if it is favorable

to exercise (if it is "In the Money"). Otherwise, ALFA does not have to pay anything.

2nd Generation Options Dealing Pre-requisites

• Signed Framework Agreement

51

Foreign Exchange rate

FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Money Market

Contact Persons

Milan Chúpek +421 2 5055 9500 mchupek@vub.sk

Viera Bialková +421 2 5055 9510 vbialkova@vub.sk

Tomáš Kraus +421 2 5055 9595 tkraus@vub.sk

František Stacho +421 2 5055 9520 fstacho@vub.sk

Capital Market

Currency Options

Analytical Reports

Interest Rate Derivatives

Structured Products

52


Capital Market

Capital Market


Capital Market


Capital

Market

Basic Capital Market Instruments

Debt Securities – Bonds

Bonds are securities which entitle the holders to rights of requesting the nominal redemption value to be paid

back and the yield, or interest payments, to be made at certain dates and the obligation of the borrowers, or

entities, entitled to issue bonds (hereinafter referred to as the ‘issuer’) to honor the above commitments. Some

bonds may provide the holder with optional rights to convert the bonds into other type of bonds or shares, or

with some other rights stated in terms of the securities issue.

Bonds are usually issued in principal values of 1.000,-Sk, 10.000,-Sk, 100.000,-Sk, and 1.000.000,-Sk. Bonds may

be denominated in other currencies as well. In such cases, the principal value is expressed in foreign currency (EUR,

USD, CZK, HUF, PLN, etc...). The Bond issue rate is the cash amount at which the issuer issues the bond.

The issuer is obliged to pay the bond yield as stated in the form and on the dates specified in the bond document.

The Bond yield may be specified as follows:

a) fixed interest rate (e.g. 5,10 % per annum);

A four-year bond coupon paid once a year, carrying a fixed interest rate of 5,10 % p.a.

Primary

Issue Purchase

b) fixed interest rate and profit sharing;

c) difference between the bond nominal value and its lower issue rate (e.g. an investor buys a five year zero

coupon bond for 54,04 % of its nominal value and at the end of the five year period they are paid 100 %

of the nominal value. This means 13,10 % rate of return on the investment on an annual basis);

A five year zero-coupon bond, issue rate of 54,04 %

Primary Issue Purchase

at 54 % of nominal value

5,10 % 5,10 % 5,10 %

Year 1 Year 2 Year 3 Year 4

0 % 0 % 0 %

d) premium-ballot, or premium depending on time to bond redemption date;

e) floating interest rate (e.g. 6M BRIBOR + 1,90 %, or NBS discount rate + 3,20 %), or FX rate development

depending on the interest rate movements or financial market rate movements;

f) combination of the above.

55

100 % nominal value

+5,10 % coupon

Year 1 Year 2 Year 3 Year 4

Bond Redemption

100 % nominal value

+0 % coupon

Bond redemption

100 % value

FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


Analytical Reports

Capital Market Currency Options Interest Rate Derivatives

Structured Products

Money Market

FX Transactions

Types of Bonds

Government Bonds

Government bonds are debt bonds issued by the Slovak Republic. The Ministry of Finance is the issuer.

The Ministry may issue government bonds only on the basis of a Slovak Republic Government decision

made in accordance with the Slovak Republic law on the government budget for the relevant year, or in

accordance with the decision of the National Council of the Slovak Republic (the Parliament) regarding the

method of covering the budget deficit.

They represent the safest form of investment in the capital market with almost zero risk. They are issued in

Slovak Koruna mainly, but also in foreign currencies, such as EUR, USD, and JPY.

Mortgage-Backed Bonds

Mortgage-backed securities are debt bonds, the principal and interest payment of which is properly covered

by payments on the underlying mortgages granted by the bank and secured by the banker’s lien on

the real estate.

Proceeds from selling mortgage-backed securities are used by the banks for mortgage business only.

Mortgage-backed securities may only be issued by banks licensed for mortgage banking.

Mortgage-backed securities issued may be backed only by mortgages where the debt amount is less than

70 % of the value of the pledged real estate, i.e. collateral. The total nominal value of mortgage-backed

securities issued must be backed at least at the same amount and with the same yield as the nominal value

of mortgage debt of the mortgage bank, and thus it represents a regular cover. Assets used to back the

nominal amount of mortgage-backed securities must not be pledged by the mortgage bank.

Mortgage-backed certificates represent one of the safest forms of investing due to their cover by high-quality

mortgage debt. For the time being, they are issued in Slovak Koruna only. VÚB, Inc. has already made

eight successful issues of mortgage-backed securities totalling 3.55 billion SKK and it leads the market of

mortgage-backed securities (referred to as the ‘HZL’).

Corporate Bonds (including bank bonds)

Corporate bonds are debt securities used by issuers to raise funds in the financial market with maturities

over one year. They represent the most profitable investment option along with acceptable risks. In preparing

issues like this, VÚB, Inc. devotes much attention to the past and present business performance

of the issuer, as well as its future capabilities to honor its commitment to pay the principal and interest on

the bonds. From among the latest successful issues arranged by VÚB, Inc, let us mention, for example,

the second issue of corporate bonds of Banské Stavby, Inc. – in the amount of 100 Mio SKK; the third and

fourth issue of Matador, Inc. bonds in the amount of 550 Mio SKK.; or the third issue of Palma Tumys, Inc.

bonds in the amount of 250 Mio SKK.

Bank bonds represent a special category of corporate bonds. They carry a lower yield due to the lower risk

of banking institutions. VÚB, Inc. has already issued 8 billion SKK in nine issues of bonds denominated in

Slovak Koruna.

Municipal Bonds

Borrowing instruments referred to as municipal bonds may be issued by:

a) a bank which uses the cash raised by issuing municipal bonds to fund a municipal loan granted to a

municipality which applied for the municipal bond issue, while the municipality secures the bond issue by

its immovable assets,

b) a municipality securing its municipal bond issue by its assets.

A bank may guarantee municipal bonds. Municipal bonds issued by a bank are a debt bond, the value of

which, including the yield, has a proper cover by bank receivables from municipal loans secured by a real

estate lien, or alternative cover.

Municipal bonds are among the most risky investments, yielding, however, the highest interest income.

56


Convertible Bonds

Convertible bonds are specific in providing the right to convert the bonds into shares. This way, benefits

of bonds may be combined with benefits of shares.

Under the terms of the bond issue, the issuer may also specify terms and conditions under which the

bond owner is entitled to exchange the bond for another class of securities, or has a pre-emptive right

to subscribe company shares (Prior bond), or others.

Equity Securities

Shares are equity securities providing the shareholder as a partner with rights to participate in managing

a joint-stock company, to share in its profit, as well as liquidation proceeds in case of company dissolution.

Shareholders are entitled to company profit sharing – dividends to be received based on the general

assembly meeting and its decision on performance profit to be distributed. Unless specified otherwise

by provisions of the Articles of Association regarding shares with a different title to profit sharing, this

share in the profit is determined by the ratio of nominal value of shares held to the total nominal value of

shares held by all shareholders.

During the existence of the company, even in case of its dissolution, shareholders are not entitled to

claim their equity investment to be repaid. After a company is dissolved and liquidated, shareholders are

entitled to their share in the liquidation proceeds.

In general assembly meetings, shareholders are entitled to participate, vote, ask for explanations, and

make proposals. The number of votes of a shareholder is determined by the nominal value of their shares.

The method of voting is specified in the Articles of Association where the voting rights may also be limited

by setting a ceiling on the maximum number of votes per shareholder.

57

FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Bond Issue Brokerage

Money Market

Structured Products

Product Characteristics

Issuing bonds – alternative source of financing, one of the ways of raising funds to finance the needs of

an issuer.

The bank offers full service of issuing bonds, including the following activities:

• Consulting and advisory services related to bond issuing in accordance with valid legislation, including

development of the bond issue prospectus,

• Registering the issue with the Central Securities Register of the Slovak Republic, ‘Stredisko cenných

papierov SR, a.s.’,

• Placing issued securities on the primary market,

• Listing the issue with the Bratislava Stock Exchange,

• Arranging payment of interest and principal value of bonds.

Having signed the mandate (brokerage) agreement, the bank, in close cooperation with the client and in

accordance with the valid legislation, develops the relevant documentation needed for bond issue and

listing with the BCPS.

Price

Pursuant to valid Pricelist of VÚB, Inc.

Interest Rate Derivatives

Documentation

• Mandate Contract

Contact Persons

Soňa Kundrátová +421 2 5055 2282 skundratova@vub.sk

Kamil Duffek +421 2 5055 2517 kduffek@vub.sk

Capital Market

Analytical Reports

Currency Options

58


Selling Issued Securities on the Primary Market

Product Characteristics

Possibility of customer raising funds by issuing bonds – placing or underwriting bond issues.

This is full service combined with the sale and primary issue of securities. In cooperation with clients, the

bank designs sales support activities, presentations, and identifies and approaches investors. The bank

provides for crediting customer accounts and posting securities to the proprietary account of investors

with the Central Securities Depository. The bank is an important investor and it is actively involved in the

primary issue underwriting activities. Bank branch networks located throughout the Slovak Republic may

be used for primary issues placement.

Price

Case by case, depending on the size of the issue, or securities sold.

Documentation

• Commission (Brokerage) Contract

Contact Persons

Stanislav Figlár +421 2 5055 9401 sfiglar@vub.sk

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FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Money Market

Developing a Request to List Securities with BCPB

for Trading Purposes

Product Characteristics

Stock Exchange listing of securities indicates the quality level of the securities and high standing of the

issuer, thus contributing to increased interest in the issuing company by both domestic and international

investors.

The Client may contract the bank for provision of all services related to filing a request to list securities

with the Bratislava Stock Exchange.

Structured Products

Interest Rate Derivatives

Based on a customer request, having assessed the issue and the issuer in light of valid listing rules of the

stock exchange, the bank designs a listing request, including the listing prospectus. Bank services also

include a company presentation to the BCPB Listing Committee.

Price

Pursuant to valid Pricelist of VÚB, Inc.

Documentation

• Mandate Contract

Contact Persons

Soňa Kundrátová +421 2 5055 2282 skundratova@vub.sk

Kamil Duffek +421 2 5055 2517 kduffek@vub.sk

Capital Market

Analytical Reports

Currency Options

60


Primary Capital Market

Product Characteristics

VÚB, Inc. provides for investor participation in the primary securities market. In this way, it makes it possible

to use one of the most favorable methods of investing surplus funds available on the capital market. The most

important benefits of primary market investing includes:

• purchase at subscription/issue price, usually lower than market value,

• purchase of securities issued or arranged by VÚB, Inc. free of charges and fees,

• purchase of securities issued or arranged by other companies with minimum fees charged (0.05 % of the

amount, maximum 20.000,-Sk)

Buying bonds of VÚB, Inc.

By issuing its own bonds, the bank raises funds with a longer maturity on the financial market. Bank bonds

offer an ideal opportunity to invest in an instrument earning higher interest than government bonds, while

accepting the low risk of the bank.

Purchase of securities issued by VÚB, Inc. on the primary capital market is arranged on the basis of a Binding

order.

Buying bonds issued via VÚB, Inc.

This represents an alternative investment with a higher return while accepting a higher risk. In preparing corporate

bond issues, VÚB, Inc. devotes much attention to past and present business performance of the issuer,

as well as its future capabilities, to honor its commitment to pay the principal and interest on the bonds.

Purchase of securities issued by VÚB, Inc. on the primary capital market is arranged on the basis of a Binding

order.

Buying Government bonds

Only banks, securities traders, and insurance companies may directly participate in primary auctions of

government bond issues. Clients may participate in government bond primary issue sales via the bank as

an indirect investor. The Securities Purchase Brokerage service is provided by the bank on the basis of

an Agreement signed by the customer, the bank, and the National Bank of Slovakia. On the basis of this

agreement, a client may participate in the auction and make its own auction bids.

Buying other securities

Purchase of other securities on the primary capital market is arranged on the basis of a signed commission,

or brokerage contract. The bank provides for client participation in the primary issue by acting on their behalf,

and it arranges for the securities to be posted to the client proprietary account held with the Central Securities

Depository (‘SCP’).

Price

Pursuant to valid pricelist of VÚB, Inc.

Documentation

• Government Bonds – Agreement on indirect participation in the primary market of booked government

securities issued in the Slovak Republic and denominated in Slovak currency

• Other bonds – Brokerage contract

• Proprietary issues – Binding order

Contact Persons

Stanislav Figlár +421 2 5055 9401 sfiglar@vub.sk

Andrej Ungvarský +421 2 5055 9403 aungvarsky@vub.sk

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FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


Currency Options Interest Rate Derivatives

Structured Products

Money Market

FX Transactions

Secondary Capital Market

Product Characteristics

Providing for investors access to securities secondary market and for their quick and easy investing.

Specialist staff exercise securities purchase and sale on the basis of investors’ decisions.

Arranging purchase or sale of publicly placed and traded securities:

• Domestic securities traded on the Bratislava Stock Exchange (‘Burza cenných papierov v Bratislave’)

– the bank acts as a broker for trading Slovak equity shares and bonds

• International equities – the bank currently acts as a broker for trading in international equity markets

throughout Europe (London, Frankfurt, Paris, Amsterdam, Madrid, Milan, Helsinki,...), America (NYSE,

NASDAQ, AMEX,...), and Australia

• International bonds – the bank currently offers the possibility of purchasing government or corporate

bonds with no continental limitation. VÚB, Inc. was the first bank in Slovakia to offer this product to its

customers.

The bank offers the following services:

• Securities trading on bank behalf, on client account;

• Domestic deal settlement, i.e. title transfers in Slovak Republic Central Securities

• Depository, (‘Stredisko cenných papierov SR’); Financial settlement via Stock Exchange, or directly with

counter party;

• Trading on international markets via brokers,

• International capital market deals settlement, both title and fund transfers.

Price

Pursuant to valid pricelist of VÚB, Inc.

Documentation

• Commission Contract on brokerage of purchase/sale of securities

• Commission Contract on brokerage of purchase/sale of foreign securities

• Foreign securities Custody Agreement.

Contact Persons

Zdenko Šipoš +421 2 5055 9402 zsipos@vub.sk

Stanislav Figlár +421 2 5055 9401 sfiglar@vub.sk

Andrej Ungvarský +421 2 5055 9403 aungvarsky@vub.sk

Capital Market

Analytical Reports

62


Repurchase Agreement (REPO)

Product Characteristics

Having invested in securities (equity or debt securities), an investor may use a REPO (Repurchase agreement)

to raise liquidity for an agreed period of time without having to sell the securities and thus close the

position. This type of deal is also referred to (from bank perspective) as: ”REPO as lending”.

The transacting parties fix the REPO period, REPO rate, and transaction amount; the price is then specified,

for which VUB, Inc. buys the securities as well as the repurchase price at which the securities are

transferred back to the investor.

1. Opening a REPO deal on day T.

Payment for securities

Securities

2. Closing a REPO deal on day T+ number of days of the REPO deal life.

Payment for securities

Securities

REPO: Requirements and Transaction Characteristics

Notional amount

Currency

Reference rate

Maturity

Price of REPO deal

Interest method

INVESTOR

INVESTOR

Min 10 Mio SKK, or other currency equivalent

SKK, EUR, USD, and others

BRIBOR, or relevant reference rate in other country

Maximum 12 months (revolving possible)

BRIBOR + surcharge (or other ref. rate + surcharge)

Depending on method applied to repurchased security

The notional amount of the deal is the amount of cash the bank pays to the investor when opening a REPO

deal (in case of REPO on bonds other than zero-coupon bonds, it is the sum of the principal amount and

accrued interest).

For SKK deals, BRIBOR (BRatislava Interbank Offered Rate) is applied as a reference rate, being the interest

rate fixed by 11.00 a.m. on business days by the Central Bank (NBS fixing). Contracts denominated

in EUR use EURIBOR, contracts denominated in CZK use PRIBOR, and for all the other main currencies

LIBOR is used.

The beginning and end of the deal are negotiable. However, it is common practice to use a minimum of

one week. The most frequent periods are 1, 3, 6, 9, or 12-months.

A REPO deal may be terminated early at the investor’s request, while the repurchase price is adjusted to

reflect the actual period of the deal.

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FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Calculating the Repurchase price of a REPO deal

Money Market

The REPO deal repurchase price is determined by the following:

N – notional value of a REPO – for equities = share price * number of shares

– for bonds = (bond price + accrued interest on the repo deal date)*number

of bonds

AI on T – accrued interest on deal opening date

AI on T + D– accrued interest on deal closing date

Structured Products

RR – repo rate – reference interest rate increased by surcharge expressed in decimals,

e.g. 6,1 %....0,061

D – number of days of REPO life

A – amount, number of securities

RR in SKK = N *D * RR/360

AI on T+ D = (AI on T+D) * A

Repurchase price = (N +RR in SKK –AI on T+D)/ A

Interest Rate Derivatives

Currency Options

Sample Use of a REPO:

ALFA Ltd. investes its surplus funds available amounting to 100 Mio SKK by buying 10 year government

bonds carrying a fixed coupon of 5 %. However, at the moment, it needs to refinance for three months a

newly launched project, and decides to use a REPO deal.

BRIBOR 3M = 6 %

RR= 3M BRIBOR + 0.5 % = 6.5 %

Bond nominal value: 100.000,- SKK

Government bond price = 101 % (101.000,-SKK)

Accrued interest per bond: 1.900,- SKK

Number of bonds: 1.000

Opening a REPO on date T

ALFA Ltd. transfers the bonds to the bank and receives the payment.

1.000 bonds

sold at 101 %

ALFA, Ltd.

Capital Market

Payment of

102.900.000,- SKK

Deal size (amount of cash received from the REPO)= 101.000*1.000 + 1.900 *1.000 = 102.900.000,-

SKK

Analytical Reports

64


Closing the REPO on date T+90 days

The bank transfers the bonds to ALFA Ltd. The company pays the price fixed on day T.

Calculating the repurchase price:

Repo rate in SKK =[102.900.000 SKK* (90*0,065/365)] = 1.649.219 SKK

Accrued interest on date T+90 days = (3.133 SKK* number of bonds)= 3.132.877 SKK

Repurchase price = (102.900.000+ 1.649.219 – 3.132.877)/1.000 = 101.416 SKK (101.416 %)

Summary

• REPO is a product for an investor who has invested in securities and needs to raise cash for a certain

time period.

• In case an investor holding securities denominated in one currency wants to use a REPO to raise cash

in another currency, this product may be combined with a cross currency swap transaction.

Documentation

• REPO Agreement

1.000 bonds

sold at 101.416 %

Payment

of 104.548.877,- SKK

INVESTOR

Contact Persons

Stanislav Figlár +421 2 5055 9401 sfiglar@vub.sk

Andrej Ungvarský +421 2 5055 9403 aungvarsky@vub.sk

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FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Money Market

Reverse Repurchase Agreement (Reverse REPO)

Product Characteristics

An investor may use a Reverse REPO (reverse repurchase agreement) and deposit temporarily surplus

funds available by investing in securities with more favorable interest earnings from interest (having considered

taxation aspects) compared to money market instruments. This type of deal is also referred to

(from bank perspective) as: ”REPO as borrowing”

The transacting parties fix the REPO period, REPO rate and transaction amount, and the price is then

specified, for which VUB, Inc. sells the securities as well as the repurchase price at which the securities

are bought back from the investor at the end of the deal.

Structured Products

Opening a REVERSE REPO on day T

Payment for securities

INVESTOR

Securities

Closing a REVERSE REPO on day T+ number of days of the REPO deal life

Payment for securities

INVESTOR

Interest Rate Derivatives

Currency Options

Capital Market

Securities

REPO: Requirements and Transaction Characteristics

Notional amount

Currency

Reference rate

Maturity

Price of a REPO deal

Interest method

Min 10 Mio SKK, or other currency equivalent

SKK, EUR, USD, and others

BRIBID, or relevant reference rate for other currency

Maximum 12 months (revolving possible)

BRIBID – surcharge (or other reference rate – surcharge)

Depending on issue specification of the repurchased securities

The notional amount of the deal is the amount of cash expressed at the total nominal value of securities

the bank sells to the investor when opening a REPO deal (in case of REVERSE REPO, on bonds other

than zero-coupon bonds, it is the sum of the principal amount and accrued interest).

For SKK deals, BRIBID (BRatislava Interbank Bid Rate) is applied as a reference rate. Contracts denominated

in EUR use EURIBID, contracts denominated in CZK use PRIBID, and for all the other main currencies,

LIBID is used.

The beginning and end of the deal are negotiable. However, it is common practice to use a minimum

of one week. The most frequent periods are 1, 3, 6, 9, or 12-months. A REVERSE REPO deal may be

terminated early at the investor’s request, while the reverse repurchase price is adjusted to reflect the

actual period of the deal.

Analytical Reports

66


Calculating the Repurchase price of a REVERSE REPO deal

The REVERSE REPO deal repurchase price is determined by the following:

N – notional value of a REPO – (bond price + accrued interest on the repo deal opening date) * number

of bonds

AI on T – accrued interest on deal opening date

AI on T + D – accrued interest on deal closing date

RR – repo rate – reference interest rate reduced by surcharge expressed in decimals, e.g. 5.4 %....0,054

D – number of days of REVERSE REPO life

A – amount, number of securities in pieces

RR in SKK = N * D * RR/360

AI on T + D = (AI on T + D) * A

Repurchase price = (N + RR in SKK - AI on T + D)/A

Sample Use of a REVERSE REPO:

ALFA Ltd. wants to invest its surplus funds available in the amount of 100 Mio SKK for a period of three

months until it buys 10-year government bonds carrying a fixed 5 % coupon.

BRIBID 3M = 5.8 %

RR= 3M BRIBOR – 0.4 % = 5.4 %

Bond Nominal value: 100.000,- SKK

Government Bond price = 101 % (101.000,-SKK)

Pro rata interest income per bond: 1.900,- SKK

Number of bonds: 1.000

Opening a REVERSE REPO on day T

ALFA, Ltd. buys the bonds and pays the purchase price.

Payment of

102.900.000 SKK

1.000 bonds

bought at 101 %

ALFA, Ltd.

Payment for the bonds purchased = 101.000*1.000 + 1.900 *1.000 = 102.900.000,- SKK

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FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


FX Transactions

Money Market

Structured Products

Closing a REVERSE REPO on date T+90 days

ALFA, Ltd. transfers the bonds to the bank, the bank; pays the price agreed at the earlier date, on day

T.

Payment of 104.371.000 SKK

for the bonds

1.000 bonds

at 101,137 %

INVESTOR

Calculating the repurchase price:

Repo rate in SKK =[102.900.000 SKK* (90*0,054/365)] = 1.370.121 SKK

Pro rata interest income on date T+90 days = (3.133 SKK* number of bonds)= 3.132.877 SKK

Repurchase price = (102.900.000+ 1.370.121 – 3.132.877) / number of bonds = 101.137 SKK (101.137 %)

Summary

• REVERSE REPO is a product for an investor looking for an alternative form of depositing surplus funds

available, and using tax benefits attached to this type of deal.

Documentation

• REPO Agreement

Interest Rate Derivatives

Contact Persons

Stanislav Figlár +421 2 5055 9401 sfiglar@vub.sk

Andrej Ungvarský +421 2 5055 9403 aungvarsky@vub.sk

Capital Market

Analytical Reports

Currency Options

68


Analytical Reports

Analytical Reports


Analytical Reports


Analytical

Reports

Analytical Reports

VÚB offers its customers free of charge the service of mailing analytical reports of the Slovak economy

and International economic developments. The analyses are produced by a team of analysts having

experience of working for acknowledged domestic and international institutions. This team closely

follows and analyzes the latest trends in the Slovak and international economy and, making use of the

knowledge of the economic environment, it provides its customers with early information on the latest

economic developments.

The following types of analyses are currently included our mailing offer:

The Daily Review contains macro-economic and political news, as well as a summary of the Slovak

money market, bond market, and FX market developments (in Slovak and English language).

The Weekly Overview summarizes the economic and political news and Slovak financial markets

developments from the previous week (in Slovak and English language).

The Special Review responds to published macro-economic indicators and specific important

economic events (in Slovak and English language).

The Quarterly Overview provides a global picture of the Slovak economy and its developments over the

previous three months (in Slovak and English language).

The International Daily Review contains economic news covering the world economy and international

financial markets (in Slovak language).

The International Weekly summarizes developments on international financial markets from the previous

week (in Slovak language).

Contact Persons

Zdenko Štefanides +421 2 5055 2567 zstefanides@vub.sk

Mária Alexová +421 2 5055 1727 malexova@vub.sk

Mária Valachyová +421 2 5055 1518 mvalachyova@vub.sk

71

FX Transactions Money Market Structured Products Interest Rate Derivatives Currency Options Capital Market Analytical Reports


Interest Rate Derivatives

Structured Products

Money Market

FX Transactions

Contact Persons

FX transactions, Money Market

Ing. Lucia Drefková +421 2 5055 9650 ldrefkova@vub.sk

Ing. Romana Drozdíková +421 2 5055 9660 rdrozdikova@vub.sk

Ing. Marianna Hubíková +421 2 5055 9640 mhubikova@vub.sk

Mgr. Ladislav Jakab +421 2 5055 9630 ljakab@vub.sk

Ing. Katarína Petríková +421 2 5055 9620 kpetrikova@vub.sk

Ing. Viola Skyvová +421 2 5055 9610 vskyvova@vub.sk

Structured MM products, Interest Rate Derivatives, FX Options

Ing. Milan Chúpek +421 2 5055 9500 mchupek@vub.sk

Ing. Viera Bialková +421 2 5055 9510 vbialkova@vub.sk

Ing. Tomáš Kraus +421 2 5055 9595 tkraus@vub.sk

Ing. František Stacho +421 2 5055 9520 fstacho@vub.sk

Capital Market

Ing. Zdenko Šipoš +421 2 5055 9402 zsipos@vub.sk

Ing. Stanislav Figlár +421 2 5055 9401 sfiglar@vub.sk

Ing. Andrej Ungvarský +421 2 5055 9403 aungvarsky@vub.sk

Primary Issues

Ing. Soňa Kundrátová +421 2 5055 2282 skundratova@vub.sk

Ing. Kamil Duffek +421 2 5055 2517 kduffek@vub.sk

Analytical Reports

Ing. Zdenko Štefanides +421 2 5055 2567 zstefanides@vub.sk

Mgr. Mária Alexová +421 2 5055 1727 malexova@vub.sk

Ing. Mária Valachyová +421 2 5055 1518 mvalachyova@vub.sk

Capital Market

Analytical Reports

Currency Options

72


Interest Rate Derivatives

Structured Products

Money Market

FX Transactions

Contact Persons

FX transactions, Money Market

Ing. Lucia Drefková +421 2 5055 9650 ldrefkova@vub.sk

Ing. Romana Drozdíková +421 2 5055 9660 rdrozdikova@vub.sk

Ing. Marianna Hubíková +421 2 5055 9640 mhubikova@vub.sk

Mgr. Ladislav Jakab +421 2 5055 9630 ljakab@vub.sk

Ing. Katarína Petríková +421 2 5055 9620 kpetrikova@vub.sk

Ing. Viola Skyvová +421 2 5055 9610 vskyvova@vub.sk

Structured MM products, Interest Rate Derivatives, FX Options

Ing. Milan Chúpek +421 2 5055 9500 mchupek@vub.sk

Ing. Viera Bialková +421 2 5055 9510 vbialkova@vub.sk

Ing. Tomáš Kraus +421 2 5055 9595 tkraus@vub.sk

Ing. František Stacho +421 2 5055 9520 fstacho@vub.sk

Capital Market

Ing. Zdenko Šipoš +421 2 5055 9402 zsipos@vub.sk

Ing. Stanislav Figlár +421 2 5055 9401 sfiglar@vub.sk

Ing. Andrej Ungvarský +421 2 5055 9403 aungvarsky@vub.sk

Primary Issues

Ing. Soňa Kundrátová +421 2 5055 2282 skundratova@vub.sk

Ing. Kamil Duffek +421 2 5055 2517 kduffek@vub.sk

Analytical Reports

Ing. Zdenko Štefanides +421 2 5055 2567 zstefanides@vub.sk

Mgr. Mária Alexová +421 2 5055 1727 malexova@vub.sk

Ing. Mária Valachyová +421 2 5055 1518 mvalachyova@vub.sk

Capital Market

Analytical Reports

Currency Options

72

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