Introduction
"Foreign Exchange Interest Rate Swaption" product is an option to enter into a swap. A plain vanilla Interest Rate Swaption is a swaption with underlying swap to pay the fixed rate and receive the floating rate or the other way around. Under the conditions of paying a certain option fees，the swaption buyer has the right but not the obligation to enter into a pre-designated swap on the swaption expiration date (European style option) or within a time period (American style option). If the market level is more favorable, the swaption buyer could also determine to give up the exercise of the swaption and enjoy the flexibility of entering into a new swap at better market level.
Features
Corporates as swaption buyers could hedge against unfavorable future market movements while preserve the flexibility to gain from favorable market movements. Swaptions are often used to hedge contingent risk exposures. It could be used by parties entering into a swap to give them the flexibility to terminate a swap. And it could be used to speculate on interest rate as well.
Target Customers
Domestic institutions with foreign exchange liabilities or holding foreign currency assets and other customers approved by the relevant regulatory departments.
Process
1. Agreement signing: before conducting option trading with Bank of China, customers need to sign the Master Agreement of Derivative Transactions.
2. Deposit implementation: customers engaging in such a product must have credit supports or provide a certain amount of cash as the security deposit to the customer relations department.
2. Inquiry: customers shall inquire from Bank of China about the price by providing all the transaction details in the form of written applications.
3. Completion of the transaction: once the transaction is concluded, Bank of China shall provide transaction confirmation to the customer.
4. Submission of transaction application: before such deals, the corresponding applications need to file with Bank of China by customers' operation departments.
5. Transaction conclusion: Bank of China will make respective confirmations to customers once such transactions have been reached.
6. Settlement: on the swaption value date, the swaption buyer will pay the seller an amount of option fees. On swaption expiration date, the swaption buyer decides whether or not to exercise the option and inform the counterparty, i. e, the corresponding seller. If the options are to exercise, then the two parties enter into a pre-designated swap and actual settlement shall take place on every–coupon exchange date, otherwise the option will be expired.
Our Advantages
1. Bank of China owns rich experience in the trading of international markets, and serve customers with such expertise to support their business development.
2. With leading financial technologies and dealing resources, Bank of China is able to design diversified trading platforms to meet customers' needs, to achieve reduction or lock-up of market risks and thus to decrease customers' trading costs.
3. One of the earliest banks to start up relevant business in China.
4. The Bank has the ability to calculate and quote prices for such a product.
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