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Product Description

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  • Interest Rate Hedging

    • Forward Rate Agreement (FRA) – FRA's are forward contracts in which one party pays a fixed interest rate and receives a floating interest rate equal to a reference rate (the underlying rate). The payments are calculated over a notional amount over a certain period, and netted; i.e. only the differential is paid. For example, if a client wants to lock in a fixed rate at which they will borrow in three months' time, they can enter into a three month FRA to pay 1.00%. In three months' time if rates are higher than 1.00%, ADCB pays the client the current value of the difference. If rates are lower than 1.00%, the client pays ADCB the present value of the difference.
    • Options (cap and floor) -The cap is a product that enables clients to cap their interest rate payments. If rates rise above the cap strike, the client receives the difference between the interest rate fixing and the strike. The client pays a premium for the cap. The floor is a product that enables clients to floor their interest rate receivables. ADCB pays the client the difference between the interest rate fixing and the floor strike if rates fix below the strike. The client pays a premium for the floor.
    • Vanilla Interest Rate Swap (IRS) – the vanilla IRS is a derivative product that is used to hedge against rising rates. The mechanics of the product are such that the client pays a fixed rate to receive floating. Irrespective of the market rate, the client will continue to pay a fixed rate for the entire life of the trade.
    • Knock Out Swap (KO Swap) – this is an interest rate swap that knocks out periodically if rates fix above a predefined barrier. The client is hedged against higher rates as they pay a fixed rate to receive floating. As the swap has the KO feature, the client pays a fixed rate that is lower than the vanilla IRS swap.
    • Callable Swap – this is an interest rate swap that can be called by ADCB at certain predefined dates during the life of the trade. The client is hedged against higher rates as they pay a fixed rate to receive floating. The client pays a lower fixed rate than the vanilla IRS because they have given ADCB a right to call the swap.
    • Range Accrual Swap – This is an interest rate swap in which the client will either pay a fixed rate and receive a floating rate, subject to a pre-specified condition being met; or alternatively a client can receive a subsidy or positive carry (to reduce existing debt servicing costs) subject to a pre-specified condition being met. These can be tailored to meet specific requirements, and can be made callable as well.
    • Floater Swap – This is an interest rate swap which can be used by client to receive a subsidy or positive carry (to reduce existing debt servicing costs) subject to a pre-specified condition being met. These can be tailored to meet specific requirements, and can be made callable as well.
    • Extendable Swap – this is a variation to the vanilla interest rate swap that gives the client the right to extend the swap at the maturity of the trade. The client can extend the swap to pay the same fixed rate under the original swap. As the client has the right to extend the swap the fixed rate that they pay is slightly higher than the vanilla swap rate.
    • Switchable Swap – this is an interest rate swap that enables the client to hedge by paying a rate that is lower than the vanilla swap because, the client gives ADCB the right to switch their payments from fixed to floating or floating to fixed at some point during the life of the trade.
    • Cross Currency Interest Rate Swap – The cross currency swap enables clients to swap strips of cash flows from one currency into another at future dates in order to match cash flows from/to underlying assets and liabilities. Both legs of the swap could be fixed/floating, floating/floating or fixed/fixed. The rate of exchange is fixed in advance. The swap usually has an initial and final exchange but this is not always the case.
  • Foreign Exchange Hedging

    • FX forward – is an agreement between two parties to buy or sell a currency at a pre-agreed future point in time. One party agrees (obligated) to sell, the other to buy, for a forward price agreed in advance.
    • FX Options (calls and puts) - An option is a financial instrument (or derivative) which gives the buyer (or holder) the right, but not the obligation, to buy or sell an underlying asset for a fixed price (known as the strike price) at a specific time (known as expiry). For this right, the option buyer pays a premium to the seller. The option seller has a duty to buy or sell the underlying asset if the buyer decides to exercise his right.
    • A call – enables the client to lock in the rate at which they buy a currency at a future date.
    • A put – enables the client to lock in the rate at which they sell a currency at a future date
  • Commodities Hedging

    • Commodity forward - the commodity forward enables clients to buy or sell a commodity at a fixed price at a future date. For example, the buyer of aluminum could agree to buy 50,000mt at a fix price of $3000/mt in three months' time. The client locks in a fixed price of aluminum for their transaction in three months.
    • Commodity options - An option is a financial instrument (or derivative) which gives the buyer (or holder) the right, but not the obligation, to buy or sell an underlying asset for a fixed price (known as the strike price) at a specific time  (known as expiry). For this right, the option buyer pays a premium to the seller. The option seller has a duty to buy or sell the underlying asset if the buyer decides to exercise his right.
    • A Call option – enables the client to lock in the rate at which they buy a commodity at a future date
    • A Put option – enables the client to lock in the rate at which they sell the commodity in future
  • Credit Hedging

    • Total return swaps - this is financial derivative in which a client swaps the return on an underlying asset for a fixed or floating payment. For example, if a client wants to borrow money to buy a bond because they want the return on the bond but the client has a higher cost of borrowing than ADCB, then ADCB can borrow money (at a lower cost than the client) to buy the bond and pay the client the total return on the bond. In exchange, the client will pay ADCB the cost of borrowing plus a fee.
  • Equity Hedging

    • Options (call and put) - An option is a financial instrument (or derivative) which gives the buyer (or holder) the right, but not the obligation, to buy or sell an underlying asset for a fixed price (known as the strike price) at a specific time (known as expiry). For this right, the option buyer pays a premium to the seller. The option seller has a duty to buy or sell the underlying asset if the buyer decides to exercise his right.
    • A Call – enables the client to lock in the rate at which they buy an equity at a future date.
    • A Put – enables the client to lock in the rate at which they sell an equity in future.
    • Total Return Swaps (TRS) –this is financial derivative in which a client swaps the return on an underlying asset for a fixed or floating payment. For example, if a client wants to borrow money to buy an equity because they want the return on the equity, but the client has a higher cost of borrowing than ADCB, then ADCB can borrow money (at a lower cost than the client), buy the equity and pay the client the total return on the equity. In exchange the client will pay ADCB the cost of borrowing plus a fee.
    • Equity swaps –the equity swap is similar to the TRS. In the equity swap ADCB and the client hold a particular equity and both ADCB and the client agree to swap the return on their equity.
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Call - 800 SME 800 (800763800, within UAE)

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