Hedge against FX risk - agree on the exchange rate in advance
Lock in stable and predictable cash flows, because future payments in RSD terms based on imports are known in advance
Avoid a potential loss which may occur due to adverse exchange rate change
What is a covered forward?
Covered forward is an FX purchase at a previously agreed and fixed exchange rate, where the client pays RSD funds (cover) on the closing date and receives the purchased FX funds on the agreed future date.
This product is also called quasi-forward or forward with cover.
Covered forward also provides a possibility to clients to agree on and fix the exchange rate for FX purchase on a future date, but it requires engagement and depositing of RSD funds immediately upon signing an agreement, which is not the case with standard FX forward.
In order to enter into a transaction, it is necessary to:
Open an account with Erste Bank
Enter into a Framework Agreement
Unlike a standard FX forward where the exchange of RSD and foreign currency funds is executed on a future date, in case of a covered forward, you must provide RSD necessary for FX purchase in the moment of entering into the transaction, while you receive the FX funds on the agreed future date.
The exchange rate is agreed on and fixed as in the case of a standard FX forward on the closing date of the transaction.
Risks associated with this financial instrument
The opportunity to enjoy the benefits of a falling exchange rate in the event of FX purchase or the benefits of a rising exchange rate in the event of FX sale is limited.
Change of a market exchange rate may lead to a decrease in the market value of the purchased financial instrument.
A sale of the purchased financial instrument may lead to additional costs, depending on the situation in the market.
If you are interested in the product or if you need additional information, please contact us or send us an inquiry