|Currency Risk Hedging|
SWAP operations enable to buy and sell currencies simultaneously in an amount, date and exchange rate agreed upon in advance.
E.g,: a Company needs EUR 100,000 on the 1st of May, but it has US dollars. At the same time the Company does not want to exchange USD for EUR, because on the 10th of May the Company will again need USD. In this case the Company will use the Swap mechanism - make a Swap Agreement with Bank Republic, receive needed EUR 100,000 and on the 10th of May the initial amount will be returned to the Company in USD.
Forward Dial is a futures transaction when parties agree on the Forward Exchange Rate and define the future value date.
Forward Dial that allows customers to hedge (insure security) against risks generated by foreign exchange fluctuations.
E.g., a Company imported goods to Georgia on the 1st of May. On the 10th of May the Company will again need to purchase goods worth EUR 100,000 in order to import the next consignment. In this case the Company will make a Forward Agreement with Bank Republic, under which the exchange rate for EUR 100,000 for the 10th of May will be defined in advance. Thus, the risk of losses caused by exchange rate fluctuation during the period from May 1 till May 10 will be avoided.
Currency Option is a right given to the owner of an Option to purchase/sell different currencies based on the exchange rate and period defined under the Agreement.
Purpose of Currency Options is: hedging (protection) against the exchange rate risks, no upper limit for possible profits and fixed low limit of loss risks in return for a minimal commission.
E.g., on the 1st of May a Company is going to participate in a tender and in case of success the Company will have to pay USD 100,000 on the 1st of August. In this case the Company buys from Bank Republic options to purchase USD 100,000. This gives the Company an opportunity to protect itself from possible losses caused by exchange rate fluctuations in case of winning the tender. If the Company loses the tender, it can always refuse to buy USD 100,000 (opt out).
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