Interest Rate Risk Management


ΤInterest rate risk management products are aimed at customers who wish to hedge their exposure to interest rate risk. In some cases, other customers who wish to enter the interest rate market aiming to benefit from the rise or drop in interest rates may also use these products. Apart from the products listed below, there is also a large number of products available which can be tailored to suit the individual needs of each customer.

Interest Rate Swap

Interest Rate Swap (IRS) is a bilateral agreement to exchange regular interest rate payments for a specific nominal amount and for a specified period of time. One counterparty receives fixed interest rate payments and makes variable interest rate payments, while the other does the opposite. IRS is used to convert one type of interest rate liability into another (e.g. variable rate loan to fixed rate loan). This permits customers to better manage interest rate needs, depending on the existing interest rate environment.


Features

  • Minimum transaction amount: €1,000,000 or the equivalent in foreign currency

  • Currencies: EUR, USD, CHF, GBP, JPY.

  • Signing of Derivative Product Contract

  • Signing of MiFID agreement

  • Existence of relevant Credit Limits extended by the Bank

  • Conditional margin requirement

Cross Currency IRS

Cross Currency IRS (CCIRS) is a bilateral agreement to exchange interest rates of differen currencies. One counterparty pays the interest accrued by applying the interest rate of one currency over a principal denominated in that currency, while the other party pays the interest amount arising from implementing the interest of the other currency over a principal denominated in the other currency. The exchange rate of the two currencies is agreed when the transaction commences and it specifies the nominal values of the principals.
The swapped interest rates can either both be variable, both fixed, or one variable and one fixed. There are CCIRS cases when it is agreed to swap principal both in the beginning and at the end, or only at the end. In addition, if the agreement relates to principals that decrease over the life of the product (amortisation), then interim principal swaps may take place at a given exchange rate, agreed upon from the beginning.



Features

  • Minimum transaction amount: €1,000,000 or the equivalent in foreign currency

  • Currencies: EUR, USD, CHF, GBP, JPY.

  • Signing of Derivative Contract

  • Signing of MiFID agreement

  • Existence of relevant Credit Limits extended by the Bank

  • Conditional margin requirement

Forward Rate Agreement

Forward Rate Agreement (FRA) is an interest rate risk management tool that allows customers to agree today on an interest rate for a future loan or deposit at a specific future time period, without exchanging any principal apart from the interest rate difference. This product offers customers the option to fix in an interest rate for a loan or deposit. At the beginning of the future period (Settlement Date), the interest rate agreed upon between the Bank and the customer (FRA interest rate) is compared to the current market interest rate (the one that will apply in the market at the beginning of the future period and for a period equal to the FRA period). If there is a difference, it is calculated. The interest rate difference arising may either be paid by the Bank or by the customer. The one party has to pay the interest rate difference to the other at the beginning of the future period.



Features

  • Minimum transaction amount: €500,000 or the equivalent in foreign currency.

  • Currencies: EUR, USD, CHF, GBP, JPY.

  • Signing of Derivative Contract

  • Signing of MiFID agreement

  • Existence of relevant Credit Limits extended by the Bank

  • Conditional margin requirement

Interest Rate Cap

Interest Rate Caps are option contracts that offer buyers the option of protecting themselves against rising interest rates, while benefiting if the interest rates possibly drop. If the interest rates exceed the cap rate, the buyer exercises the option and receives the difference between the cap and the current interest rate. This way they lock in a high interest rate. At the same time the seller of the option (e.g. the Bank) must pay the interest rate difference if the current interest rate is higher than the agreed cap rate. Interest Rate Caps can be used to hedge the interest rate risk arising from variable rate loans.



Features

  • Minimum transaction amount: €1,000,000 or the equivalent in foreign currency.

  • Currencies: EUR, USD, CHF, GBP, JPY.

  • Signing of Derivative Contract

  • Signing of MiFID agreement

  • Existence of relevant Credit Limits extended by the Bank

  • Premium payment for cap purchase

Interest Rate Floor

Interest Rate Floors are option contracts that offer buyers the option of protecting themselves against falling interest rates, while benefiting if the interest rates possibly rise. The seller of the option (e.g. the Bank) must pay the interest rate difference if the current interest rate is lower than the agreed floor rate. Consequently, the buyer of the floor option (e.g. the customer) locks in a low interest rate. If the interest rates drop below the floor rate, the buyer exercises the option and receives the difference.



Features

  • Minimum transaction amount: €1,000,000 or the equivalent in foreign currency.

  • Currencies: EUR, USD, CHF, GBP, JPY.

  • Signing of Derivative Contract

  • Signing of MiFID agreement

  • Existence of relevant Limits extended by the Bank

  • Premium payment for floor purchase