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Forward FX Interest Rate Swap

I. Introduction
A financial agreement between customer and ICBC when one stream of future interest payments is exchanged for another based on a specific principal amount (in foreign currency) with interest calculated on the rate agreed. Interest rate swaps often exchange a fixed payment for a floating payment. No principal is exchanged between the parties. Principal is only used as the basis for interest calculation. The swap is linked to the floating rate: 1 month LIBOR, 3 months LIBOR, 6 months LIBOR and so on.

II. Target Clients
Corporate clients in and outside China who wish to hedge against currency fluctuation to preserve the value under the current low market interest rate, especially those who have floating rate FX loans of mid-to-long term.

III. Functions and Features
No fee in early period, simple structure and easy to swap, choice of entering swap transaction on an agreed future date instead of immediate delivery. Customers can hedge against interest rate fluctuation to lock down financing cost. Besides, cheaper debt can be secured using swaps of different periods to choose the most appropriate term for loan interest payments.

IV. Advantages
1. Competitive product pricing: In terms of exchange rate quotes, ICBC has a team of experienced and professional traders, product designers and quantitative analysts, flexible pricing mechanism and strong competitive advantages against the peers.

2. Tailored product design: Very flexible in the term and structure, depending on the customer requirement. Other currencies such as Euro dollar are supported to meet the special needs of customers.

3. Ongoing dynamic management: ICBC provides periodic valuation reports, and dynamic management services in line with the market movement and customer requirement.

V. Price
ICBC prices quoted to customers are based on the latest trend in FX interest rate swap market, and updated in real-time in line with the market changes.

VI. Service Channel and Hours
Corporate clients are welcomed to apply within ICBC banking hours for corporate services at any sub-branch or tier-2 branch authorized to trade derivatives.

VII. Steps
1.Assess the customer: ICBC will make an overall assessment on the customer (business nature, experience in trading financial derivatives, internal management and control) and recommend suitable products.

2. Sign master agreement: Customer has to sign necessary agreements with ICBC first.

3. Supply guarantee: Customer must pay margin or provide collateral to cover the obligation, or use the credit line specially granted for trading derivatives.

4. Risk disclosure and sign confirmation letter: ICBC will make a statement on the risk involved (cash flow analysis, market value and factors, potential loss in market value). Customer must confirm in written and sign the confirmation letter.

VIII. Risk Warning
Risks can be negative cash flow on a future trade date if there is a change in market interest rate, gain or loss depending on market value assessment, extra fee for margin calls or reverse close-out due to difference in market value assessment. You should fully understand the terms and conditions in the agreement and make independent decision. Under no circumstance ICBC shall be liable for any loss due to force majeure or accidental events.

IX. Example
A customer has a USD loan of floating rate, 3-year tenure. Interest is three months LIBOR + 250 BP, interest payment in every three months. The customer believes that USD 3-month LIBOR rate will likely remain low, no need to lock down interest rate, only worrying about the sudden surge over mid-to-long term. The customer and ICBC enter the forward USD interest rate swap transaction. ICBC pays customer 3-month LIBOR + 250 BP floating interest to hedge against the USD floating rate of the customer's loan on a specified date/time. Customer pays USD fixed-rate interests to ICBC. Through the swap, the customer can make use of the current low interest rate in the market and lock down future financial cost at the same time to avert the risk of rising interest rate later.

Note: Information herein is for reference only. Refer to the announcements and regulations of local outlets for further details. Industrial and Commercial Bank of China Limited reserves the final right of interpretation.

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