Combined products

A Target Redemption Forward means a transaction which combines a barrier (knock-out) call option and a barrier (knock-out) put option with several partial settlement dates. It is a zero cost option strategy in which one party buys the right to buy or to sell a specific currency and, concurrently, sells the right to buy or sell the same currency.

If the relevant currency option is exercised on any of the partial dates of settlement, the gains are accumulated on such date. If the accumulated gains of the client reach the predetermined amounts, both the barrier options are knocked out. Notional amounts of each of the options may be identical, but the structure is normally "leveraged", which means that the notional amounts of each of the options are different.

Product features

• Hedging on a better rate than in currency forward.
• No-cost strategy.
• The hedging ceases to exist once the pre-set gains are reached.

A forward extra with European barrier option is a combination of a plain vanilla currency option and barrier options (European style knock-in). It is a zero cost option strategy in which one party buys the right to buy or to sell a specific currency and, concurrently, sells the right to buy or sell the same currency.

Knock in of the barrier option may only occur on the expiration date of this barrier option. Notional amounts of the two options are identical.

Product features

• 100% hedging against unfavourable market development.
• The barrier may be exceeded during the "life" of the option; reaching the barrier rate is not checked earlier than on the expiration date of the barrier option.
• A narrower band in which to participate in favourable market development.

Variations of the product

Forward Extra with American barrier option - the difference is that the attainment of the barrier rate is monitored at all times from the day of execution until expiration of the deal.

• A wider band in which to participate in favourable market development.
• Higher probability that the barrier rate is reached and the barrier option is knocked in.

A risk reversal is a transaction in which a client buys a currency option (with the right to buy or the right to sell) with the agreed strike price and, concurrently, sells the bank a currency option (with the right to buy or the right to sell) with another strike price. The strike prices of the two options are normally selected so as to ensure a zero cost hedging structure for the client or so as to ensure that the premium for the option sold compensates the premium for the option bought in full extent.

Product features

• 100% hedging against unfavourable market development.
• Option to participate in a favourable exchange rate trend up to the strike price level of the option sold by the client.
• Three scenarios may occur at the moment of expiry: the option is exercised by the client, the option is exercised by the bank, or the option is not exercised by any of the parties and the client may convert it at the current rate.

Product variants 

• Both the options are arranged for the same volume (par).
• The option sold by the client is arranged for a higher volume (par), which means a better strike price of one of both the options for the client if the zero cost condition is maintained.