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CURRENCY EXCHANGE

Option Dated Forward Currency Exchanges

Description:

An option dated forward currency exchange is similar to a regular forward currency exchange, but with added flexibility. In an option dated forward currency exchange two parties agree to exchange currencies at a negotiated rate any time over the agreed upon duration of the contract period. The customer pays a specified currency to ATB, and in exchange, they receive another specified currency from ATB. The customer can exchange currencies multiple times over the contract period until the full principal amount of the contract has been reached. Contracts are typically thirty, sixty or ninety days in duration. ATB credit approval is required for an option dated forward currency exchange.

Example

A Company generates revenue in US dollars (USD). The company expects to collect a total of $5 million USD spread out over the next two months; however, the precise timing is unknown. The company’s operating costs are in Canadian dollars (CAD) and they do not want to be exposed to changes in the CAD/USD exchange rate. As a result, they enter into an option dated forward currency exchange with ATB for $5 million USD at a negotiated rate of 1.1725 CAD/USD with a contract duration of sixty days. On day forty, the company pays the $2 million USD to ATB, and in return, receives $2.345 million CAD ($2 million USD x 1.175 CAD/USD). On day fifty, the company pays the $ 2 million USD to ATB, and in return, receives $2.345 million CAD ($2 million USD x 1.1725 CAD/USD). On day sixty, the company pays the last $1 million USD to ATB, and in return, receives $1.1725 million CAD ($1 million USD x 1.1725 CAD/USD).

Risk Management Strategy

An option dated forward currency exchange is an effective risk management strategy when you are uncertain about the actual date on which you will receive a foreign currency and you want to protect yourself from future unfavourable changes in the foreign currency exchange rate.

Commonly used terms (PDF - 472K)

To speak to our local traders directly, please contact:
	Rob Laird, Director	Rob Van Horne, Managing Director
	403-974-3582	403-974-3582
	403-815-1911	403-519-3950
	Deborah Polny, Assistant General Counsel	Rimas Siulys, Managing Director Market Risk
	780-408-7320	780-408-1960
	Derivative Settlements
	780-408-6456