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Zero-Cost Collar

Zero-Cost Collar

Well-rounded management
of currency risks
No extra
charge
Flexible
transaction terms
Zero-Cost Collar is a hedging agreement covering liabilities and receivables within a predefined FX range. It is addressed to businesses with foreign currency exposure that seek protection against exchange rate fluctuations within predefined limits, at zero cost.

Features

  • Determination of upper and lower FX rate protection level.
  • Comprehensive management of FX risks outside the agreed FX range.
  • Assumption of FX fluctuation risk within the predefined range.
  • Minimum nominal amount per transaction, equivalent to €250,000.
  • Flexible transaction terms.
  • Zero cost.

Example

Based on a hypothetical EUR/USD reference FX of 1.1700.

Your business has an obligation to purchase $185,000 in 3 months. Due to exchange rate volatility and company financial planning, your business secures today, for settlement at maturity, a lower dollar purchase rate of 1.1500 and an upper rate of 1.1900.

If at maturity the EUR/USD rate is higher than 1.1900, your business purchases $185,000 at 1.1900. If at maturity the EUR/USD is between 1.1500 and 1.1900, your business purchases at the prevailing spot rate (any desired amount in USD). If at maturity the EUR/USD rate is lower than 1.1500, your business purchases $185,000 at 1.1500.

The transaction may be structured with more favourable exchange rates against payment of a premium by your business.

The information we provide about Eurobank products and services is general and non-binding.