Derivative Products are contracts that derives its value from the performance of an underlying asset. The underlying asset may be a currency, a commodity, an index, or an interest rate. The most common derivative products are given below:
- Forward Transactions: a contract between two parties to buy or to sell an underlying asset at a specified future time at a price agreed upon today.
- Option Transactions: a contract which gives the right, but not the obligation to buy or sell an underlying asset at a predefined strike price at or before a specified expiry date.
- Forward Money Swap Transactions: a contract where the investment amount is converted into another currency based on the spot currency rate at the trade date and converted back into the initial currency based on the forward currency rate (specified at the trade date) at the expiry date.
- Interest Rate Swap (IRS) Transactions: An agreement type based on the swap of interest payment obligations with different structures or rates between two counterparties.
- Structured Derivative Products with Capital Protection: Products that aim to provide additional income according to classic time deposit products by using a derivative product along with a time deposit ((capital protection can not be provided if the time deposit is closed before its expiry date.)
Derivative products can be used to provide protection against risks (hedging), and they can also be used to gain income from market price movements (speculative).
Private Banking Clients who want to gain income by taking advantage of price movements and SME’s,Commercial and Corporate Banking Clients who want to hedge against market risks can perform derivative transactions if they meet the requirements. Please contact your portfolio manager to get information about the requirements for your transaction requests.
Provides an opportunity to get additional income compared to traditional investment products. Provides an opportunity for protection against risks posed by market movements (hedging).
In derivative transactions, the possible loss could be very high, as well as the possible income. Also, parties may incur losses up to amounts that can not be predicted at the trade date of the transaction.