Foreign Exchange

Riyad Bank’s Treasury team is an active player in the various fields pertaining to the global foreign exchange market. Our traders are in constant touch with our overseas counterparts. Our sales team consists of highly experienced professionals with proven skills in the currency markets.

Our ability to obtain and disseminate information and data on the currency markets enables us to provide unrivalled service to our customers and thereby empowering them to make informed decisions on the hedging of their exposures.

Spot Foreign Exchange

Spot Foreign Exchange (FX) - is the exchange of one currency for another, for spot (usually- two days) delivery.

This is the simplest, though may not be the most efficient way for an importer to hedge the FX exposure. Simply, by buying the currency one may need in the future to settle invoices from the supplier, an importer can fix the cost.

However, the importer can incur unforeseen costs if a currency purchased is not needed until sometime in the future. The interest earned by placing this sum on deposit may not be equal to the interest that would be received on the currency sold thus making this an inefficient way of hedging the exposure.

Forward (outright) Foreign Exchange

This is similar to spot foreign exchange, as mentioned above, except that the delivery of the currency takes place at a determined date sometime in the future. This allows an importer to time the purchase of the currency to coincide with the settlement of the suppliers invoice. The price as compared with a spot trade is adjusted to take into account the interest rate differential between the two currencies.

Forward foreign exchange is a hedge against adverse currency market moves between an importer placing an order and the time the payment is due. It enables the importer to fix the price of the goods bought, in local currency, thus hedging against any possible loss.

Foreign Exchange Swaps

The most common use of foreign exchange swaps is to adjust (swap) the value date of an existing spot or forward FX transaction where the delivery of the underlying goods has been delayed (or brought forward).

The value date of the original spot or forward FX transaction is adjusted using a price similar to the calculation of the forward trade using the interest rate differential between the currencies.

Foreign Exchange Options

FX options are a popular tool for hedging exposure to unfavorable moves in foreign exchange rates. However by using options, the importer will be able to take advantage of a favorable move.

An FX option could be looked at as an insurance policy in which the importer can fix his worst rate but is able to “walk away” from the trade should the market move to a better level in exchange for a premium.

The “over the counter” options market is now very mature and pricing is extremely transparent.

A customer may purchase a “call” option which gives him the right, but not the obligation to buy a specific amount at a specific rate on a specific date in the future. Should the market move to a more favorable level, the customer can choose not to exercise his right and buy the currency at the more advantageous level.

There are a number of structures available which can be used to reduce or mitigate the premium cost and Riyad Bank’s experienced team of salesmen are fully able to offer both advice and execution of these structures.