Corporates & Institutions

Many of today's institutions operate in a global marketplace and are challenged with foreign currency exposure that may have an significant effect on the value of the company. vCapFX works with corporate treasurers, CFOs, and company executives to help identify the nature of your institution’s particular currency risk and transactions exposure and will implement a technology solution and FOREX trading platform that will give your institution the tools needed to manage these exposures and reduce foreign currency risk.

• Spot Foreign Exchange
• Forward Foreign Exchange
• Foreign Exchange Swap
• Non-Deliverable Forwards
• Currency Options
• Currency Futures

Spot Foreign Exchange

Spot deals are frequently used by Importers with payables in foreign currencies and exporters with receivables in foreign currencies. Currencies are bought and sold as needed, allowing your institution complete flexibility until the deal is done. Foreign currencies are bought or sold when the time comes to either pay for imported goods/services, or receive payment for exported goods/services.

Forward Foreign Exchange

Forward foreign exchange is used by many institutions who transact in foreign currencies and who wish to protect profit margins. Forwards are an excellent planning tool that allows accurate cash flow forecasting, protects against adverse movements in the spot market and is the simplest method of locking in an exchange rate for your institution to buy or sell a certain amount of currency on or before a specified future date. Fixing the exchange rate allows more accurate forecasting of cash flows, facilitating the budget process.

Foreign Exchange Swap

Swaps eliminate potential exchange losses resulting from adverse exchange rate movements when your foreign currency payables and receivables are due on different dates. A foreign exchange swap consists of a spot foreign exchange transaction entered into at exactly the same time and for the same amount as a forward foreign exchange transaction. The forward portion is the reverse of the spot transaction (i.e. a spot purchase) is offset by a forward sale. In this way, surplus funds in one currency are temporarily swapped into another currency for better use of your institution’s liquidity.

Non-Deliverable Forwards

NDFs are primarily used to manage foreign exchange exposures arising from investments into, or international trade with emerging countries. The governments of emerging countries often impose restrictions on the type of business that may be undertaken by offshore entities within the local financial market. A Non-Deliverable Forward is similar to a traditional Forward Foreign Exchange Contract in that an agreement is made to buy or sell a specific amount of one currency in exchange for another currency for settlement on a predetermined future date at a pre-agreed rate. The key difference is that the Non-Deliverable Forward is settled at maturity for the difference in the spot rate and the NDF rate in the hard currency only – typically US Dollars. A Non-Deliverable Forward is a transaction that takes place offshore from the emerging market.

Currency Options

Currency options are used by institutions wishing to hedge contingent exposures such as project tenders or protect profit margins while still retaining the ability to benefit from favorable market moves. Currency options provide a form of “insurance” against adverse market moves. However, like all insurance, a premium is typically paid for that protection. That premium can be minimized or eliminated by selling an option that limits some of your upside market potential.

A currency option gives the purchaser the right, but not the obligation, to buy or sell a specific amount of currency at an agreed price on or before a specific future date. There are many different types of option structures. Two of the most common are:

The Vanilla Option: Your institution pays a premium to purchase an option that will protect a “worst case” or budgeted exchange rate

The Collar: Your institution buys an option to protect a “worst case” or budgeted exchange rate and simultaneously sells an option that limits any benefit that would accrue from favorable market moves. The net result is a guaranteed range within which your foreign exchange rate can fluctuate along with a reduced or eliminated premium.