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Foreign Exchange Instruments
- 1. Presented by : Sandip Jalebar Ankit Choubey Venkat Subramanian FOREIGN EXCHANGE INSTRUMENTS
- 3. This scheme is meant primarily for export oriented units who want to import capital goods to either diversify/expand /modernize or setup new unit to increase their competitiveness in global market at competitive interest rate.
- 4. Foreign Currency Term Loan: With terms from 1 month right up to 5 years, you can free up your money tied in long-term assets such as Bonds, Structured Notes, Mutual Funds and obtain liquidity. Foreign Currency Leverage Loan: leverage loan facility against various investment products such as Bonds, Structured Notes. The leverage feature helps to enhance yield as you put in a part of the equity required for the investment and the balance is provided by the bank at competitive rates linked to LIBOR.
- 5. FIXED INTEREST RATE With bond financing, your interest rate is fixed for the term of the loan. Budgeting is simplified by knowing interest and principal payments are fixed for the entire term of the loan. Concern about rising interest rates is eliminated. LONG-TERM LOAN, FULLY AMORTIZED Many bank loans are for only three to five years, with a large balloon payment due at the end of the term. Most bond issues are fully amortized over a five-to 20-year period, depending on your needs. Level debt service aids in budgeting, and ensures that the loan can eventually be retired without the hassle of refinancing every three to five years .
- 8. *an unsecured promissory note with a fixed maturity of 1 to 270 days *a money-market security * the longer the maturity on a note, the higher the interest rate the issuing institution must pay
- 9. *High credit ratings fetch a lower cost of capital. *Wide range of maturity provide more flexibility. *It does not create any lien on asset of the company. *Tradability of Commercial Paper provides investors with exit options.
- 10. *Its usage is limited to only blue chip companies. *Issuances of Commercial Paper bring down the bank credit limits. *A high degree of control is exercised on issue of Commercial Paper. *Stand-by-credit may become necessary
- 12. A fixed rate bond is a long term debt paper that carries a predetermined interest rate. The interest rate is known as coupon rate and interest is payable at specified dates before bond maturity.
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- About Foreign Currency Loans If you need a loan for your personal investment or business needs, avail the convenience of foreign currency loans against your Globe Deposits. Swap currencies with your loans thereby reducing your interest cost by taking advantage of exchange rate opportunities. Please Note: This product is not available in certain locations. Please check with your Relationship Manager for more details. Key Features of the Loans Available in major currencies like US Dollar, Australian Dollar, Euro, Hong Kong Dollar, Yen and Pound Sterling. Other currencies include Swiss Franc, Canadian Dollar and New Zealand Dollar Very attractive interest rates Flexible tenures - 1, 3, 6, 9 or 12 months, with options to renew Interest rate is fixed for the entire period of the loan Minimum loan amount is US$ 10,000 or equivalent Borrow up to 90% of your total time deposit (depending on the collateral and loan currency) Types of Foreign Currency Loans Foreign Currency Term Loan: With terms from 1 month right up to 5 years, you can free up your money tied in long-term assets such as Bonds, Structured Notes, Mutual Funds and obtain liquidity. Foreign Currency Leverage Loan: We offer leverage loan facility against various investment products such as Bonds, Structured Notes. The leverage feature helps to enhance yield as you put in a part of the equity required for the investment and the balance is provided by the bank at competitive rates linked to LIBOR.
- BOND vs. BANK FINANCING Most of us are familiar with how a traditional bank loan works: The borrower obtains a sum of money from the bank, and it promises to repay the borrowed amount (the principal), plus a charge for the use of the money (the interest), all at a specified date in the future. A bond program works in much the same way, but instead of the bank loaning the money, the loan funds come from individual investors (the bondholders). The bonds are sold to investors in $1,000 denominations; the size of the bond issue is equal to the amount of money needed by the borrower. The borrower then makes principal and interest payments to the bondholders through a corporate trustee (usually a bank), which handles all the record keeping and payment functions. Both types of financing require collateral for the loan. Usually the collateral is real property, such as land and buildings. The Bond Company underwrites your loan by first committing to purchase all of the bonds from you, and then selling them to their investors. By contractually agreeing to buy all of the bonds, they guarantee you the funds you need to complete your project, whether it is new construction, refinancing, renovation or property acquisition. Advantages of bond financing over a bank loan FIXED INTEREST RATE Most banks only offer adjustable rate loans that can expose your organization to substantially increased loan payments if interest rates rise. With bond financing, your interest rate is fixed for the term of the loan. Budgeting is simplified by knowing interest and principal payments are fixed for the entire term of the loan. Concern about rising interest rates is eliminated. LONG-TERM LOAN, FULLY AMORTIZED Many bank loans are for only three to five years, with a large balloon payment due at the end of the term. This means you must refinance your loan at a later date. If the financial position of your organization has changed at the time, or if interest rates have risen, you might not be able to refinance. Why expose your organization to this risk? Most bond issues are fully amortized over a five-to 20-year period, depending on your needs. Level debt service aids in budgeting, and ensures that the loan can eventually be retired without the hassle of refinancing every three to five years.
- In the global money market , commercial paper is an unsecured promissory note with a fixed maturity of 1 to 270 days. Commercial Paper is a money-market security issued (sold) by large banks and corporations to get money to meet short term debt obligations (for example, payroll ), and is only backed by an issuing bank or corporation's promise to pay the face amount on the maturity date specified on the note. Since it is not backed by collateral , only firms with excellent credit ratings from a recognized rating agency will be able to sell their commercial paper at a reasonable price. Commercial paper is usually sold at a discount from face value, and carries shorter repayment dates than bonds . Typically, the longer the maturity on a note, the higher the interest rate the issuing institution must pay. Interest rates fluctuate with market conditions, but are typically lower than banks' rates
- Floating rate notes ( FRNs ) are bonds that have a variable coupon , equal to a money market reference rate , like LIBOR or federal funds rate , plus a spread . The spread is a rate that remains constant. Almost all FRNs have quarterly coupons, i.e. they pay out interest every three months, though counter examples do exist. At the beginning of each coupon period, the coupon is calculated by taking the fixing of the reference rate for that day and adding the spread Trading Securities dealers make markets in FRNs. They are traded over-the-counter , instead of on a stock exchange . In Europe, most FRNs are liquid, as the biggest investors are banks. In the US, FRNs are mostly held to maturity, so the markets aren't as liquid. In the wholesale markets, FRNs are typically quoted as a spread over the reference rate . [ edit ] Example Suppose a new 5 year FRN pays a coupon of 3 months LIBOR +0.20%, and is issued at par (100.00). If the perception of the credit-worthiness of the issuer goes down, investors will demand a higher interest rate, say LIBOR +0.25%. If a trade is agreed (and who wouldn't) the price is calculated. In this example, LIBOR +0.25% would be roughly equivalent to a price of 99.75. This can be calculated as par, minus the difference between the coupon and the price that was agreed (0.05%), multiplied by the maturity (5 year).