ING Bank capabilities:
- Interest rate swaps (IRS), forward rate agreements (FRA), cross currency swaps (CCS).
- Currencies: USD, EUR and RUB and more than 20 others.
- Tenors up to 10 years (subject to market liquidity).
- Pre-settlement and settlement limits.
- Agreement in place.
- Agreement between two parties on exchange of interest rate payments for a pre-agreed period of time.
- The contract allows to exchange floating rate into fixed and vice versa.
- No exchange of principal is involved, as both legs are in the same currency.
- Irrespective of the reference rate on the settlement date, the Buyer of IRS pays pre-agreed swap rate and The Seller pays the hedged interest rate.
Cross currency swap
- Agreement between two parties about exchange of principal and interest rate payments for pre-agreed period of time in two different currencies.
- Principal may be exchanged:
- -at the beginning and in the end of trade;
-only at the beginning;
-only in the end;
-no exchange of principal at all (exchange of interest payments only)
- This trade allows exchange of cashflows (fixed or floating) in one currency into cashflows (fixed or floating) in another one.
- Irrespective of the reference rate on the settlement date, the Buyer of the cross currency swap pays pre-agreed swap rate, and the Payer pays the hedged interest rate.
Credit contingent cross currency swap (CCCCS)
- CCCCS also known as Vanishing Swap is intended to hedge the client's EUR (or USD) currency risk and interest rate risk, by swapping into local currency and local interest rate.
- By making the swap credit-contingent (underlying reference entity is a sovereign), Clients pay a lower than market rate (discount) on the vanilla cross currency swap.
- Credit-contingent on sovereign;
- Transaction terminates if and when sovereign default occurs;
- Default must be a default under standard CDS language.
Benefits for clients:
- Client pays lower interest rate compared to vanilla CCS.
Risks to clients:
- In case the reference entity (usually a sovereign) defaults, the swap is terminated without settling unwind payments, as the result Client's FX position is unhedged.