Foreign Currency Services
Zero-Cost Range Forwards
What is a Zero-Cost Range Forward?
A Zero-Cost Range Forward can protect you by giving you a range of exchange rates within which you may sell/buy a currency at expiry.
What are the benefits/risks?
You are paying no option premium and it provides you with full protection against unfavourable FX movements beyond a predetermined level. The predetermined level of protection must be set at a level worse than the current forward price. Participating in favourable currency movements is limited.
An example
You purchased inventory from a company in the United States and $100,000 US is due in three months. You enter into a Zero-Cost Range Forward so that the cost of the Canadian Dollar Put is offset by the revenue from the sale of the Canadian Dollar Call. The Call and the Put are both for the same notional amount and the “range” protected is determined by the aim to match the premium paid with the premium received.
| Protecting: |
1.2320 for 3 months |
| Current Spot Rate: |
1.2000 |
| Purchase C$ Put - Strike price: |
1.2320 ___> |
Premium Owed: |
0.0100 C$/US$ |
| Sell C$ Call - Strike price: |
1.1650 ___> |
Premium Earned: |
0.0100 C$/US$ |
|
Total Cost: |
0.0000 C$/US$ |
Click Here to launch the
Foreign Exchange Calculator
The calculator should be used for indicative rates only and does not necessarily reflect the rates at which TD would be prepared to enter into any transactions with a customer. Customers who deal directly with Business Banking Foreign Exchange should inquire on TDFX or through their Foreign Exchange Specialist to receive rates tailored to their circumstance. TD assumes no liability or responsibility for any reliance or use that a customer may place on or make of the calculator.
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For more information, contact a Relationship Manager at the Commercial Banking Centre nearest you.
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