Blockchain and payments: further on the Gartner Hype cycle?

| 24-01-2018 | Carlo de Meijer |

Payments is increasingly seen as an area that is ripe for disruption, having the potential to enhance payment processing. To overcome the current structural weaknesses in the payments area including low speed, high expenses, financial institutions are increasingly adopting the idea of blockchain or distributed ledger technology (DLT). This in order to offer (near) instant cross-border payments at lower costs, higher security and more reliability. Up till recently most of these trials have been non-interoperable stand-alone solutions. But that may change!

Last month Blockchain bank consortium R3CEV and 22 of its partners announced that they were collaborating on the development of a cross border payments platform built using distributed ledger technology. This may be the first time a shared infrastructure has been developed that addresses the full payment workforce.

The question is: where are we now in the Gartner cycle, and will this R3 initiative be the breakthrough for a more massive adoption of this technology in the payments area?

Central banks: still see hurdles

Also central banks are actively investigating and in some cases even experimenting with blockchain including those of the United States, Canada, China, U.K., France, Germany, the Netherlands, Singapore, South Africa, and Sweden. Central banks’ interest in blockchain represents further recognition of the technology’s potential to transform many aspects of financial systems worldwide, including international payments. They are generally positive about the technology’s potential for applications such as international payment solutions.

On the other hand central banks also note technical obstacles such as scalability and other concerns such as privacy, security and legal issues. They generally emphasize that the technology is still at an early stage and may be years away from widespread use for such applications.

In a recent published research paper, the Deutsche Bundesbank offers up some encouragement for DLT acceptance. They are highlighting the technology’s ability to eliminate reconciliation processes, boost transparency and protect against cyber-attacks. The Bundesbank however dampened the blockchain enthusiasm, dismissing distributed ledger technology’s prospects in retail payments, at least in the Eurozone, which already boasts fast transfers and systems that require a minimum of reconciliation and can process millions of transactions with ease every day.

The authors concede that “it is still unclear whether DLT also has the edge over today’s technology in terms of security, efficiency, costs and speed”.

Read the full article of our expert Carlo de Meijer on Finextra

 

Carlo de Meijer

Economist and researcher

 

What will be the new “normal” for interest rates?

| 23-01-2018 | Lionel Pavey |

Despite interest rate being very low for the last few years, general consensus is that rates will eventually rise – rates will become more normal. Rates are being held down by the actions of central banks with their quantitative easing. As QE is scaled backed and stopped this should allow rates to rise from their current low levels. The big question is – how high will rates rise? The Euro is not yet 20 years old and that means that whilst there is a lot of data, it does not require looking through 50 or 60 years of data to try and find the norm.

From a high of just over 5% in the summer of 2008, 10 year swap rates have fallen to a low of around 0.25% in the autumn of 2016 and are currently just under 1%. Historically, it has been usual to describe prices as moving back to around the average. However, having just under 20 years of data, it is possible to analyse the average fairly quickly.

The average rate for 10 year swaps for the last year is about 0.80%
The average rate for 10 year swaps for the last 2 years is about 0.70%
The average rate for 10 years swaps for the last 5 years is about 1.15%
The average rate for 10 year swap for the last 10 years is about 2.20%
And the average since 1999 when the Euro started is about 3.40%

The lowest rate was about 0.25% in 2016
The highest rate was about 6% in 2000

What is normal? From a personal point of view when I took out my first mortgage (back in the previous millennium) the advice I was given was that if long term fixed rates (10 years) were lower than 6.5% I should look to lock into that rate as the long term average was 7%. With every other property that I subsequently bought the long term fixed rates were lower than with my first mortgage. Currently mortgage rates for 10 year fixed are around 1.75%. Long term interest rates have been steadily falling for the last 30 – 35 years.

So, when we talk about rates eventually rising, we are still left with the problem that previous benchmarks – which were normal then – may not be applicable anymore.

A rate raise is absolute – the magnitude and its impact will be relative to our perception of the new “normal” benchmark.

Lionel Pavey

 

 

Lionel Pavey

Cash Management and Treasury Specialist

 

How to fix a problem like “IBOR”

| 22-01-2018 | treasuryXL |

In the last year both the ECB in regard of EURIBOR and the FCA in London in regard of LIBOR have come to the same conclusion – the fixing of interest rate indices can not carry on in their present form. The current benchmarks are tainted by allegations of fraud and malpractice. Furthermore, the way that the rates are determined are also criticized – no actual transactions take place at the fixing price when the fix is made daily. But the big problem is that these fixings are intrinsically linked to financial contracts with values measured in 100 of trillions of EUR, USD, GBP etc.

The underlying financial products are not just derivatives – IBOR’s are also used to price floating rate loans, mortgages etc. The major problem beyond the fraud aspect is that the rates are supposed to express the interbank floating rates for various tenors. But with liquidity being very sparse in the interbank market, and the rates only being voluntary expert judgement of actual trading rates, do the rates truly reflect the cost of borrowing? ECB expects to replace EURIBOR by 2020 and the FCA to replace LIBOR by 2021. But what products can be used to replace IBOR?

Initially it appears that secured overnight rates could be the answer. Trades are reported to the relevant authorities and the transactions are based on secured lending. However, the tenor does not complement the existing fixings and financial products. A traditional EUR interest rate swap consists of an annual fixed coupon against floating 6-month coupons. Using an overnight fixing means that you would not know the 6-month floating rate until the end of the 6-month period.

To get around this problem a market could be used for existing basis spread products. As stated an overnight rate relates to secure, risk free transactions whereas IBOR relate to unsecure transactions. This means that with IBOR credit risk is built into the price. Certain additional products could be used to take an overnight rate fix to a 6-month fix – namely basis swaps. But who would supply the prices for basis swaps – the same banks who have been accused of fraud in the current IBOR process.

Another alternative is constructing the fixing from repo transaction with different tenors. But repo’s are sensitive to the credit risk of the collateral issuer. This means trading on the basis of Specials – clearly defined and named collateral issuers. With all the QE that is taking place there is an alarming shortage of high-quality government back paper that is in the free market that the very scarcity would lead to irregular pricing.

So whilst authorities have clearly stated that interest rate fixings can not carry on in their present form, they have yet to offer a valid alternative. In the meantime, contracts measured in 100 of trillions will need to be adjusted for the new method for fixings. The only people who will welcome these changes are the legal profession who get to redesign “all” the existing contracts.

Lionel PaveyLionel Pavey – Cash Management and Treasury Specialist

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PSD2 – has it hit the ground running?

| 18-01-2018 | treasuryXL |

On the 13th January 2018, PSD2 came into force. In previous articles we have discussed the meaning of this legislation. To recap – it is a directive to regulate the payment market and payment service providers, whilst also opening the market to non-banks. This should lead to a uniformity in products, technical standards and infrastructure. PSD2 will allow customers of banks to voluntarily use third party providers to process and initiate their financial transactions.

In the UK the process has gone even further – Open Banking has been enacted. Fintech companies are now in the position of taking over the ownership of the customer relationship that banks now have – assuming this is what the customer wants. The traditional relationship between a bank and a customer is now under threat. Banks, which have traditionally applied a one shop for all your financial transactions approach, will possibly have to change and look more like an App store from which customers can choose the services that they want.

To effectively compete in this new market will mean focus on data mining and achieving an economy of scale. It is not inconceivable that tech giants such as Google, Facebook or Amazon could start offering financial services on the back of their sizeable databases. Whereas banks have invested heavily over the years in their payment processes, new technology means that the costs are far lower for a new entrant.

But will PSD2 truly open the European market for financial services? Research indicates that we very seldom interact beyond our own national borders. The cost of banking, credit cards, mortgages, car insurance etc. differ greatly within the EU. A survey that was commissioned by the European Commission concluded that 80% of Europeans would not consider purchasing a financial product from another EU member state. Any dreams of one Europe are rudely interrupted by such research and public opinion. This is not to say that public opinion could not change – rather that the current market is not very elastic.

So PSD2 is up and running – how about the banks? PwC published a report in December 2017 after conducting interviews with senior executives in European banks. Just 9% reported they were ready, despite 66% saying it would affect their operations. Furthermore, a report was published today by the Dutch Data Protection Regulator stating that the legislation does not take privacy requirements enough into account. This despite the legislation being passed more than 2 years ago.

Eventually banks that are early to design their products specifically for this legislation and bring them to market could establish a clear lead on their opposition. Also, if the public reluctance to transact cross-border was to diminish, it is possible that – in the future – we could be purchasing our mortgages in Finland, our credit cards in the UK and our car insurance in Hungary!!

If you want more information please feel free to contact us via email [email protected]

MiFiD II – 10 days old: Status Report

| 16-01-2018 | Lionel Pavey |


MiFiD II is a regulation leading to reform in the European financial industry. This is an update to the original MiFiD regulation which started in 2007. It is expected to offer greater protection to investors and to increase transparency within the markets. There is a strong determination to move trading from “Over the Counter” such as voice activated markets, to more established electronic venues as these are easier to audit and monitor.

 

What are the aims of MiFiD II

  • Greater transparency and efficiency in markets
  • Moving from OTC trading to regulated trading areas
  • To restore confidence lost by investors after the financial crisis

What markets are affected

  • Equities
  • Commodities
  • Fixed Income
  • Foreign Exchange
  • Futures

Who is affected

  • Everyone who is a participant in the market

How will it work

  • Caps on the volume that can be traded in dark pools
  • Pricing transparency for OTC markets
  • Division between payments for trading and payments for research
  • Increased standards for investment products

What has happened since 3rd January 2018

Some major exchanges – Eurex, London Metal Exchange, ICE – have received reprieves from implementation and do not have to fully comply with open access rules for the next 30 months. This is despite legislation that took more than 5 years and was delayed for 1 year. This also means that certain investors will choose a deliberate route to market for their transactions that do not need to be fully reported on for the next 30 months.

ESMA (European Securities and Markets Authority) announced on 9th January 2018 that there will be a delay in implementing the cap on dark pool trading volumes until at least March 2018. These dark pools are favoured by investors and traders who wish to trade a significant amount of stock without the rest of the market knowing or the price moving.

Markets that have traditionally worked on voice activated trading – fixed income and interest rate derivatives – are still going strong. However, there is a threat to their existence if more trades are done on recognized exchanges and/or platforms.

What about research

As the cost of research has now been split from trading, it will be very clear what an investor is having to pay. Furthermore, analysts will be more inclined to only produce analysis on the larger “Blue chip” companies – both for equity and fixed income. There is a fear that smaller companies will now fall away from the spotlight and little or no research will be produced and published. Consequently, investors might become averse to taking a position in a small company where there is no research available. There is a threat that what independent research is produced will be biased as the cost for the research has to be earned back. There are rumours that maybe the exchanges will pay for research – this could be paid out of listing fees.

So, to conclude, MiFiD II is alive and running – but they are some serious disappointments compared to how it was envisaged. Perhaps such all encompassing legislation should be reduced to bite sized chunks and drip fed into the market. Any legislation that is late in being implemented and extends to more than 17 million words is, perhaps, not what the market needs and/or wants all in one go.

Lionel Pavey

 

 

Lionel Pavey

Cash Management and Treasury Specialist

 

Planning & Operations – a clear vision and purpose

| 15-01-2018 | treasuryXL |

Planning & Operations
Treasury is a function which entails many different roles and responsibilities. The main task is to monitor and manage the cash within a company ensuring there is sufficient liquidity. This means monitoring all the cash flows – both inflow and outflow, together with the sources of the flows – current operations, investments, borrowing etc. There must be enough liquidity to maintain the daily operations, whilst excess funds need to be invested. At the same time, Treasury must ensure that excess funds are invested in a safe and prudent manner and that future assets and liabilities are hedged where appropriate.

Due to the complexity of the task, it is very difficult to give a short description of all the different roles. This is an overview of the main roles that Treasury undertake:

  • Planning and operations
  • Liquidity Management
  • Planning and operations
  • Risk Management
  • Funding
  • Stakeholder activity
  • Corporate Governance

Planning and Operations

This relates to the routines that Treasury perform to ensure that a company can move forward from day to day.

Payments – ensuring that a company meets its financial obligations – specifically to debtors, banks, tax authorities etc. It is very important for a company that it is seen by its counterparts to be secure, organized and that debts are paid on time.

Cash flow forecasting – this is the main planning element within Treasury. Information must be gathered from the entire organization both at head office level and subsidiary level. Information can come from accounting, capital investment budgets, operational budgets, loan maintenance records, tax and dividend records, etc. It is the responsibility of Treasury to ensure that there are sufficient funds within a company to meet all its operational requirements.

Risk assessment – Treasury needs to develop and maintain the risk matrix. This means not only identifying the risk, but also ascertaining the appetite within the company for the risk. A clearly defined matrix will ensure that all risks are recognized, and the correct procedures are carried out to mitigate the risk to the agreed level.

Treasury systems – how is data received and stored? If a decision is made to purchase a dedicated TMS, then Treasury is involved in discovering the criteria to meet the company mandate, the search for a relevant supplier, the implementation and maintenance of the system, together with the operation of the system. A good TMS system should enhance workflow, lead to more concise reporting and lead to financial savings.

Banks – banks and other financial service providers are an integral part of Treasury and their operations. This requires analysis, negotiation and selection of the preferred supplier. Treasury needs to keep a close eye on the costs charged against the service that is offered. This can mean regular appraisals and renegotiation of the fees. Ultimately, a company needs to know that the operations are performed smoothly, timely and accurately.

Strategic development – Treasury are responsible for the operational risk that have been agreed by the Board of Directors. Treasury needs to liaise, inform and alert the Board when issues arise – be they internally or the result of changes in legislation that have an impact on the smooth day to day operations that they perform on behalf of the company.

Next: Liquidity Management

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist

 

 

Financieringsstructuur: solide fundament of kaartenhuis?

| 12-01-2018 | Bianca van Zeventer |

Leningen worden vaak gezien als een goede manier om lange termijn investeringen te financieren. Een (gecommitteerde) meerjarige lening levert veelal zekerheid voor de middellange termijn. “Voor meerdere jaren vastgelegd” blijkt in de praktijk vaak niet waar te zijn. Leningen worden afgesloten als een aanvullende vorm van financieren, naast rekening courant, lease en/of andere leningen. Hoewel het aangaan van de meerjarige financiering ‘an sich’ niet heel risicovol hoeft te zijn, zijn de voorwaarden dit soms wel.

Elke vorm van financiering heeft zijn eigen voorwaarden. Aan de verschillende leningen worden specifieke voorwaarden toegevoegd. En dan zijn er nog de algemene (bank)voorwaarden.
Veel bedrijven nemen onterecht aan dat dit ‘standaardvoorwaarden’ zijn en er maar beperkte onderhandelingsruimte is.

De voorwaarden van de verschillende arrangementen spreken elkaar vaak tegen, zijn niet zoals beoogd en/of dienen niet het doel en het belang de onderneming.

Financiering in welke vorm dan ook blijkt vaak een kaartenhuis. In plaats van mooi gestapeld, zijn de arrangementen een domino met de eerste steen in handen van de kredietverlener.

Wanneer uw onderneming onverhoopt in zwaarder weer terecht komt, dan is het belangrijk dat het staat op een solide financieel fundament.
Voorkomen is beter dan genezen geldt hier ook. Beter vooral goed uit-onderhandeld dan later de financiering amenderen of herstructureren. Of zelfs geen keuze meer hebben. Uw bank of financier eenzijdig de mogelijkheid geven alle financieringen te herroepen of betaalbaar te stellen, biedt geen financiële stabiliteit.

Maar vaak blijken de verschillende voorwaarden zodanig in elk kaar te grijpen, dat dit wel het geval is.

Een FlexTreasurer met gespecialiseerde financieringskennis, kan u helpen een snelle scan te maken van uw financieringsstructuur, aanbevelingen doen voor aanpassingen en/of financieringsarrangementen namens u of samen met u (her)onderhandelen.

 

Bianca van Zeventer

Treasury and Finance Specialist / Owner of CuCoFin

 

 

MEER INFORMATIE

Wil je meer weten of iets anders over de diensten van Flex Treasurer of heb je een andere vraag?
Pieter de Kiewit helpt je graag verder.

 

This is why corporate treasury is great – The laymen introduction to corporate treasury

| 09-01-2018 | Pieter de Kiewit |

My father was a civil engineer and would have liked one of his kids to follow in his footsteps. Regretfully for him we all went in different directions, me landing an engineering degree of the wrong type. What I did like to learn from my first business management professor was about creating bridges between various functional areas. That is what I have been doing as a recruiter for almost 25 years, the last 8 solely in corporate treasury. Why treasury?

All organisations, even the small ones, can benefit from good treasury. Only the bigger ones hired permanent experts. The main three areas, perhaps oversimplified, they focus on are:

  1. Money logistics: opening and closing bank accounts, doing (bulk) payments, forecast money coming in and going out;
  2. Managing (treasury) risk: understand and manage the implications of interest or currency fluctuations. If your manufacturing costs are in Euro and you sell in Dollars and the price of the Dollar drops, what to do? What to do if you have excess cash on your current account;
  3. Funding: where do you get your money for new or current business? Bank loans, equity, mortgage, leasing?

This does not sound sexy, does it? But do understand that during the crisis treasurers found solutions for companies how to survive. They found funding to pay salaries, helped sales finding creative funding solutions to make complex transactions achievable, helped prevent companies going belly-up due to currency exposures, forced banks to offer better solutions at a more acceptable price.

Treasurers manage huge amounts of money and operate very close to the CFO. They are involved in mergers & acquisitions, reorganisations and international expansion. They act in small numbers but have huge impact if they would stop doing their work. And the job type evolves continuously. Creating new treasury bridges to traditional job types like accounting, tax, sales helps all doing a better job. The academic world is showing increasing interest. In the Netherlands the post graduate education at the Vrije Universiteit is becoming more prominent in the treasury community. Corporate treasury is very dynamic!

What I love doing is helping CFO’s, HR, internal recruitment and senior treasury managers with their staffing questions. What qualifications and personality type matches best with your current and future business situation. If you only hire one treasurer per year, what do you need to know to choose the best candidate? I hope now you can understand my passion for creating bridges in treasury and recruitment.

I look forward to your thoughts to the above and further contact,

Pieter de Kiewit
[email protected] / +31 6 1111 9783

Pieter de Kiewit

 

 

Pieter de Kiewit
Owner Treasurer Search

 

 

Bitcoin – hype or reality?

| 08-01-2018 | Lionel Pavey |

Having spent my  working life in international finance, I have patiently listened to all the news about the Bitcoin over the last few years. During 2017 whilst the Bitcoin was on a spectacular price rise, my interest was awakened in this new phenomenon – is this the future? I attended seminars, read articles, learnt the difference between the Bitcoin and the Blockchain, searched and investigated via the web, and tried to form an opinion. These are my findings:

Here is a technology that has recently been created – started in 2009 – that has caused a huge debate and led to passionate arguments on its merits or demerits. Those in the know understand its concept – the rest are baffled by its very existence. At essence it is a digital currency – there are no coins or notes in existence. It is decentralized – there are no governments controlling it. If you own it, your identity is anonymous to others – transactions take place via encryption keys. The supply is limited – protocol dictates that a maximum of 21 million Bitcoins can be produced. At the end of 2017 there were 16,774,500 coins in circulation – roughly 80% of the maximum allowed. So, the supply is clearly limited, but they have no real intrinsic value – they do not represent a claim on an asset.

My main area of interest has been on the price – the rise in 2017 of more than 1,400% is astounding. I decided to collate some information and have a chart showing Bitcoins price of the last 2 years.

Such a stellar performance should mean that the trade volume has increased dramatically.

Well……. here is another chart

The daily volume in September 2017 when the price was about $4,000 was the same as the start of February 2016 when the price was about $400. I had to create this chart as all the data I could find related to the $ value of turnover – which was phenomenal – and not the actual number of Bitcoins traded. Normally, when an asset sees a huge increase in price, this goes together with a corresponding increase in turnover. Clearly this has not happened with Bitcoin – why?

There appears to be a “strategy” of buying Bitcoin to hoard them. There does not appear to be a sizeable free float of Bitcoin. If there is more demand than supply, then obviously the price will increase dramatically. Bitcoin is touted as an alternative currency, yet the advocates do not seem to want to spread it around with everybody else. It is a currency that is not used to settle transactions – this makes it difficult to consider Bitcoin becoming a recognized mechanism for payments. One of the criteria of money is that it is a “medium of exchange” – yet again Bitcoin, which appears to be hoarded, does not meet the criteria.

How can a cryptocurrency replace a conventional fiat currency if it is not freely tradeable? Furthermore, if you hold Bitcoin and want to take your profit, then this will be realized in a fiat currency. As Bitcoin is generally quoted and traded in $, this means receiving your profit in an antiquated currency that your cryptocurrency wishes to replace – ironic?

The underlying technology – Blockchain – is here to stay. As to whether Bitcoin is here to stay – if people hoard Bitcoin, it will exist. What the value of Bitcoin should be – whatever someone is prepared to pay for it. Will it replace fiat currency – maybe one day, but not in its present Bitcoin form.

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist

 

Forward Rate Agreement (FRA)

| 05-01-2018| Arnoud Doornbos |

Money Market outlook

At the press conference on 14 December 2017, the ECB announced that expectations for economic growth and inflation have been adjusted upwards. But despite optimistic growth, the ECB is not yet fully convinced of a continued upward trend in domestic price pressures. And thus Draghi: “An ample degree of monetary stimulus … is necessary for underlying inflation pressures to continue to build up.”

For this reason, the ECB will maintain the buying program at least until September 2018. And only then will an increase in policy rates come into the picture. Since the beginning of 2017, investors have seen the chance that the ECB will implement an increase in policy interest rates. This has not yet had an effect on the three-month Euribor rate. This has been stable at around -0.3% for the whole of 2017, and we expect that this will be the case in the vast majority of 2018 as well.

But markets will go up again for sure during time and borrowers need to prepare themselves for that moment. A good interest rate risk management can help to extent the pleasure of using favorable low interest rates for your company. Hedging your short term interest rate exposure with FRA’s could be a good idea. Good timing is essential.

 

 

Definition

A Forward Rate Agreement’s (FRA’s) effective description is a cash for difference derivative contract, between two parties, benchmarked against an interest rate index. That index is commonly an interbank offered rate (-IBOR) of specific tenor in different currencies, for example LIBOR in USD, GBP, EURIBOR in EUR or STIBOR in SEK. A FRA between two counterparties requires a fixed rate, notional amount, chosen interest rate index tenor and date to be completely specified.

FRAs are not loans, and do not constitute agreements to loan any amount of money on an unsecured basis to another party at any pre-agreed rate. Their nature as a IRD product creates only the effect of leverage and the ability to speculate, or hedge, interest rate risk exposure.

 

 

 

How it works

Many banks and large corporations will use FRAs to hedge future interest or exchange rate exposure. The buyer hedges against the risk of rising interest rates, while the seller hedges against the risk of falling interest rates. Other parties that use Forward Rate Agreements are speculators purely looking to make bets on future directional changes in interest rates.

In other words, a forward rate agreement (FRA) is a tailor-made, over-the-counter financial futures contract on short-term deposits. A FRA transaction is a contract between two parties to exchange payments on a deposit, called the Notional amount, to be determined on the basis of a short-term interest rate, referred to as the Reference rate, over a predetermined time period at a future date.

At maturity, no funds exchange hands; rather, the difference between the contracted interest rate and the market rate is exchanged. The buyer of the contract is paid if the published reference rate is above the fixed, contracted rate, and the buyer pays to the seller if the published reference rate is below the fixed, contracted rate. A company that seeks to hedge against a possible increase in interest rates would purchase FRAs, whereas a company that seeks an interest hedge against a possible decline of the rates would sell FRAs.

 

Valuation and Pricing

 The cash for difference value on a FRA, exchanged between the two parties, calculated from the perspective of having sold a FRA (which imitates receiving the fixed rate) is calculated as:

where N is the notional of the contract, R is the fixed rate, r is the published -IBOR fixing rate and d is the decimalized day count fraction over which the value start and end dates of the -IBOR rate extend.

For USD and EUR this follows an ACT/360 convention and GBP follows an ACT/365 convention. The cash amount is paid on the value start date applicable to the interest rate index (depending in which currency the FRA is traded, this is either immediately after or within two business days of the published -IBOR fixing rate).

For mark-to-market (MTM) purposes the net present value (PV) of an FRA can be determined by discounting the expected cash difference, for a forecast value r:

where vn is the discount factor of the payment date upon which the cash for difference is physically settled, which, in modern pricing theory, will be dependent upon which discount curve to apply based on the credit support annex (CSA) of the derivative contract.

Quotation and Market-Making

 FRA Descriptive Notation and Interpretation

 

How to interpret a quote for FRA?

[EUR 3×6  -0.321 / -0.301%p.a ] – means deposit interest starting 3 months from now for 3 month is -0.321% and borrowing interest rate starting 3 months from now for 3 month is -0.301%. Entering a “payer FRA” means paying the fixed rate (-0.321% p.a.) and receiving a floating 3-month rate, while entering a “receiver FRA” means paying the same floating rate and receiving a fixed rate (-0.321% p.a.).

Due to the current negative Money Market rates means receiving actually paying and the other way around.

 

 

 

 

 

 

Arnoud Doornbos 

Interim Treasury & Finance