Derivative Instruments

With Forward transactions, you can securely buy and sell foreign currency in futures markets.

A forward exchange contract is a derivative contract that allows the purchase and sale of different foreign currencies and settlement currencies on a future date at a rate of exchange and parity determined at the date of the contract. For export or import companies, forward contracts minimize the risks that may occur due to the fluctuations in the foreign exchange rates. With forward contracts, you can secure your foreign currency receivables and debts in the volatile and risky market environment and have protection against foreign exchange risk.
By using LYCA P. B. Corporate Internet Banking, you can make transactions over a variety of exchange rates and parities with a minimum of 3,000 USD or an equivalent amount in foreign currencies.

What is a forward transaction?

Forward transactions are those transactions where the type of currency, as well as amount, maturity and level of exchange (price), are set as of today under a contract so that currency exchange transaction can take place at a future date.
Unlike spot foreign exchanges to be executed at the current price, in forward transactions, foreign exchange rates are determined as at the date of transaction according to the maturity in question, and the transaction is executed so as to be settled at a future date.
Upon the execution of the contract, one party undertakes to buy a foreign currency at a date, an exchange rate, and an amount all of which are determined and agreed by and between the parties whereas the other party undertakes to sell that foreign currency under the agreed conditions.
Unless the customer fulfills the commitment under the contract, the bank shall initiate a crediting procedure in order for the money exchange to be effected. The customer that did not fulfill the commitment arising from the forward exchange contract shall be obliged to pay the credit to be disbursed with the applicable market conditions.

What do you need to make forward transactions via Corporate Internet Banking?

Our SME and Commercial customers should meet the following criteria to be able to make forward contract transactions via Corporate Internet Banking.

• The legal status of the company should be Joint-stock Company, Limited Liability Company, or Limited Partnership Divided by Shares.

• The relevant contracts should be signed.

• Derivative Limit Credit Package should be defined.

• The user that wishes to perform a transaction should be authorized to make derivative transactions on behalf of the company, and the related authorization form should be signed.
  

You can contact your branch for matters related to credit application, contract conclusion, authorization form, and also to get detailed information.

How is the calculation done in forward transactions?

Forward foreign exchange rates vary according to the current spot foreign exchange rates and the maturity designated. Forward foreign exchange rate is calculated by the addition of late charges to the current spot exchange rate of the selected foreign currency. Forward prices do not represent a prediction of future exchange rates.

Is it possible to cancel forward transactions?

Forward transactions are based on an agreement and executed according to the terms and conditions of an agreement. As per the agreement, the contractual parties are obliged to honor their contractual commitments in accordance with the maturity date as well as the amount and price mutually agreed under the agreement. Therefore it is not possible to cancel a forward transaction that you may enter into.

Is it possible to settle the forward transactions prior to their maturity dates?

Provided that the forward transactions are executed at the price agreed under the contract, it is possible to close out and settle the contractually agreed amount in part or in full prior to the maturity date. There are two types of early settlements:

• Regular Delivery, Early Settlement: In such early settlement transactions, trading settlements take place prior to maturity date according to the type of currency, transaction direction, amount, and price established in the agreement. According to transaction direction, the late charges are either paid to or collected from our customer.

• Delivery by Netting, Early Settlement: In such early settlement transactions, trading settlements do not take place prior to the maturity date according to the type of currency, transaction direction, amount, and price established in the agreement.

Costs are calculated according to spot exchange rates current as on the day of early settlement; this cost is either paid to or collected from our customer. You can perform your early settlement transactions on the day of the forward transaction or on days other than the maturity date of your forward transaction. For detailed information, please seek assistance from our branches.

How are forward transactions closed out and settled on the maturity date?

Provided that the forward transactions are executed at the price agreed under the contract, the contractually agreed amount in full should be closed out and settled on the maturity date. There are two types of settlements. Delivery type for settlement may be changed until the day before the maturity date.

• Regular Delivery Settlement: In such settlement transactions, trading settlements take place on the maturity date according to the type of currency, transaction direction, amount, and price established in the agreement. On the maturity date, the relevant amount under the contract is brought to the bank, buy-sell transaction is performed by applying the forward foreign exchange rate, and thus the settlement is concluded.

• Delivery by Netting Settlement: In such settlement transactions, trading settlements do not take place on the maturity date according to the type of currency, transaction direction, amount, and price established in the agreement. Netting time for TLFX forward transactions is 14:00 (Time in Turkey). Netting time for FXFX forward transactions is 17:00 (Time in Turkey). Netting rate is typed on the screen, and the procedure is concluded by the calculation of profit-loss based on the netting rate.
  

What is a swap transaction?

Swap transactions are an exchange contract in which two counter-parties exchange different foreign currencies and/or different interest payments within a certain period of time. The elements of the contract can be listed as the definition of the asset or assets to be exchanged, the fixed or variable interest rate to be applied to each asset, and the payment dates. The swaps traded predominantly in the swap market are currency swaps and interest rate swaps. The products are usually preferred by institutions aiming to manage their cash flows and interest liabilities.

What are its characteristics?

• In interest rate swaps, two parties one of whom borrows with fixed interest rate while the other does so with variable interest rate exchange stream of interest payments based on a specified principal amount; the said principal, however, never changes hands.

• Cross-currency swaps are performed in order to benefit from the interest yield brought by the currency with higher interest by way of eliminating the exchange risk in two different currencies for a certain period. Thus the parties switch to the foreign currency with a higher yield without being exposed to the exchange risk.

• Swap contracts are suitable for clients wishing to avoid the risk caused by fluctuations in exchange rates and interest rates.
  

What is an options transaction?

An options contract is an agreement that gives the buyer the right to buy (call) or sell (put) a certain financial asset at a predetermined due date and price while obliging the seller to buy or sell. Options premium is calculated by considering the maturity, price (spot and exercise), volatility, and market interest rates.

For whom is it suitable?

• Buying options contracts is recommended for investors who want to hedge risk and fix the future value of their holdings.

• Selling option contracts is recommended for investors who want to earn premium income.