treasury_guidebook.pdf

3
Dear Reader,
You are looking at a new publication prepared by the Raiffeisen Bank Treasury Department
under the very revealing title of Treasury Guide. This guide will take you into the world of
money and capital markets transactions, a segment of the market that involves and offers
rather complicated and extremely rapidly changing risks and opportunities.
Naturally we are aware that the readers of this guide are not necessarily looking for an
exciting read or to acquire new or intrinsically fascinating information, though we do hope
that our publication will provide this too. However, as is the case with hundreds of thousands
of participants in the Hungarian economy, you will not be able to avoid at least thinking
about the issues covered here in the course of your everyday business or from time to time
making decisions that involve the purchase or sale of foreign currency for forint, to mention
just one of the simplest of problems you may face.
Dealing with these matters is, of course, natural for those who are actively involved in foreign
trade, such as exporters and importers. It is perhaps less natural for other parties not directly
involved in foreign trade, such as households, resident companies and municipalities, to deal
with such matters, yet at the current stage of development of the Hungarian economy (and at
a time of persistently high forint interest rates), it may be unavoidable for them to do so.
As a market-leading commercial bank, Raiffeisen Bank possesses all the instruments,
technology and expertise necessary for satisfying such needs of its customers. However, this
is by no means enough, in our opinion. We regard it as our duty to assist our customers in
finding their way through the often bewildering junctions and labyrinths of the international
money and capital markets. We cannot and will not make decisions for our customers, but
we will do our best to provide them with all the facts and information that are necessary for
them to arrive at the best decision possible.
This is the purpose of this publication.
Naturally, the customer service staff of the Treasury Department will be pleased to help you
if you have any further questions, and to provide you with more extensive information about
any transaction you are contemplating – and of course to professionally carry out your
orders for these transactions at highly competitive terms and conditions.
Kind regards,
Péter Felcsuti
CEO

1. Raiffeisen Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2. The financial market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2. 1. Currency market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2. 2. Money and capital markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3. Raiffeisen Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4. Currency transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4. 1. Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4. 2. Offers to exporters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4. 3. Offers to importers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
4. 4. Preconditions for concluding transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
5. Investment options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
5. 1. Yield-based investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
5. 2. Stock-exchange share transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
5. 3. Stock-exchange currency transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
5. 4. Leverage forward currency transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
5. 5. Binary option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
5. 6. Structured deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
5. 7. Preconditions for concluding deals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
6. Loan products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
6. 1. Multicurrency loan facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
6. 2. Forward rate agreement (FRA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
6. 3. Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
6. 4. Structured swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
6. 5. Interest options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
6. 6. Preconditions for concluding transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
7. Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
ISO codes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
Formulae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Research, publications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
Table of contents
5

7
In 1986, simultaneously with the introduction of the two-tier banking system in
Hungary, nine shareholders, including the Austrian Raiffeisen Zentralbank, founded
the Hungarian Raiffeisen Bank, or Unicbank as it was then called. The Bank’s name
changed to Raiffeisen Unicbank in 1997, and in 1999, concurrently with the launch
of the retail business line, it changed to Raiffeisen Bank.
Raiffeisen International operates one of the leading banking networks in Central
and Eastern Europe, in the form of its subsidiary banks and leasing companies. The
network serves more than 15 million customers through 3,000 business outlets in
17 different markets. Raiffeisen International is a fully consolidated subsidiary of
Raiffeisen Zentralbank Österreich AG (RZB). Established in 1927, RZB is Austria’s
third largest bank, and the central governing institution of the Austrian Raiffeisen
Bank Group, which is the largest bank group in the country in terms of its total
assets, and also has the most extensive local sales network.
Raiffeisen Bank is 100% owned by Raiffeisen RBHU Holding GmbH and serves its
customers through four subsidiaries and a national branch network. The Bank has
grown consistently and with a convincing dynamism ever since its establishment, and
has become a major player in the Hungarian financial sector, providing universal
financial services. Its operation is based on continuous innovation, the expertise of
its staff, the provision of high quality services to its customers, an expanding branch
network and well-capitalised shareholders. Raiffeisen Bank is striving towards
further expansion and a steady increase in its market share in each area of business
in which it operates.
Raiffeisen Bank
1.

9
In a wider context the financial market comprises all organised and spontaneous
markets and transactions where money is directly exchanged for money.
Such an exchange is partly based on equivalence and partly on differences. On the
basis of the various currencies and the different times of disposal over money, four
main financial markets may be distinguished: the currency spot market,
the currency futures market, the spot money and capital market, and
the futures money and capital market.
We must also distinguish between transactions concluded on the stock exchange
and outside the stock exchange (over-the-counter, or OTC transactions), as the
former category is subject to a high degree of standardisation and regulation,
whereas the latter involves greater flexibility and customisation.
2.
The financial market

10
2. 1.
Currency market
With regard to the selection of the exchange rate system, the government makes a
decision in agreement with the National Bank of Hungary (MNB). In 26th February
2008 the former trading-band regime has been changed to free floating regime,
i.e. the EUR/HUF rate changes according to the demand and supply.
The former exchange rate regime in its main characteristics was identical to the
ERM II. regime. The middle and edges of the exchange rate band and the official
exchange rate of the forint against the euro was defined by the MNB. The EUR/
HUF medium exchange rate was 282.36, the market rate could differ from this by
as much as +/-15%; in other words, the upper and lower edges of the exchange
rate band were 324.71 and 240.01 EUR/HUF respectively.
Prior to adopting the euro, every country has to spend at least two
years, without any “extreme” exchange rate fluctuations, in the ERM II
exchange rate mechanism. The purpose of the convergence criteria, otherwise
known as the Maastricht criteria, is to ensure that the economies of the EU
member states converge and achieve stability, so they can enter the third stage of
European Economic and Monetary Union and adopt the common currency.
The convergence criteria are as follows:
The rate of inflation may not be 1.5 percentage points more than the average
inflation rate of the three member states with the greatest price stability, and this low
inflation must be produced in a sustainable manner. This figure is currently 3.2%.
The annual budget deficit may not exceed 3% of GDP; gross government
debt may not exceed 60% of GDP (or in the event of a debt rate of over 60%, a
continuous and significant reduction must be displayed in the debt rate).
The value of the member state’s national currency, in the two years prior to entering
the third stage of Economic and Monetary Union, may not leave the exchange rate
band determined in the second stage. In practice this also means that the given
country must join the European Exchange Rate Mechanism (ERM).
The interest rate on long-term loans may be no more than 2 percentage points
higher than the average long-term interest rate of the three member states with the
greatest price stability. This figure is currently 6.5%.
2. 1. 1.
The Hungarian
exchange
rate system

0
200
400
600
800
1000
1200
1600
1800
2000
1400
Breakdown of the Hungarian currency market by participant
Daily
turnover
in
HUF
billion
2
0
0
4
.
0
1
.
2
0
0
4
.
0
4
.
2
0
0
4
.
0
7
.
2
0
0
4
.
1
0
.
2
0
0
5
.
0
1
.
2
0
0
5
.
0
4
.
2
0
0
5
.
0
7
.
2
0
0
5
.
1
0
.
2
0
0
6
.
0
1
.
2
0
0
6
.
0
4
.
2
0
0
6
.
0
7
.
2
0
0
6
.
1
0
.
2
0
0
7
.
0
1
.
2
0
0
7
.
0
4
.
2
0
0
7
.
0
7
.
2
0
0
7
.
1
0
.
2
0
0
8
.
0
1
.
2
0
0
8
.
0
4
.
2
0
0
8
.
0
7
.
2
0
0
8
.
1
0
.
2
0
0
9
.
0
1
.
2
0
0
9
.
0
4
.
2
0
0
9
.
0
7
.
2
0
0
9
.
1
0
.
2
0
1
0
.
0
1
.
2
0
1
0
.
0
4
.
Hungarian banks
Hungarian companies
Foreign banks
Foreign companies
11
2. 1. Currency market
2. 1. 2.
The official
MNB
exchange rate
The MNB establishes an official exchange rate on working days, and
these exchange rates are valid until the next rates are published.
The exchange rates are established at 11 a.m. on the specified days. The EUR/
HUF official exchange rate for the current day is calculated as the un-weighted
mathematical average of the EUR/HUF exchange rates quoted by the ten
domestic credit institutions with the most active currency market activities,
ignoring the two highest and the two lowest figures.
The MNB may conclude deals at the submitted quotes, and may exclude from the
process any banks that significantly depart from the prevailing market conditions.
The official USD/HUF exchange rate is established on the basis of the EUR/HUF
and EUR/USD cross rate. The central bank establishes the exchange rates of other
currencies on the basis of the calculated USD/HUF rate and the cross rates fixed
on the international currency markets at 11 a.m.
There are essentially three types of participants in the Hungarian
currency market: foreign investors, Hungarian banks and customers of
Hungarian banks. Due to the relative openness of the Hungarian economy, the
various segments of the currency market that operate through the banking system
tend to be dominated by transactions concluded with foreign players.
Figure 1 (source: www.mnb.hu)
2. 1. 3.
The Hungarian
market

0
10
20
30
40
50
60
100
90
80
70
Breakdown of forward transactions
Daily
turnover
in
HUF
billion
2
0
0
4
.
0
1
.
2
0
0
4
.
0
4
.
2
0
0
4
.
0
7
.
2
0
0
4
.
1
0
.
2
0
0
5
.
0
1
.
2
0
0
5
.
0
4
.
2
0
0
5
.
0
7
.
2
0
0
5
.
1
0
.
2
0
0
6
.
0
1
.
2
0
0
6
.
0
4
.
2
0
0
6
.
0
7
.
2
0
0
6
.
1
0
.
2
0
0
7
.
0
1
.
2
0
0
7
.
0
4
.
2
0
0
7
.
0
7
.
2
0
0
7
.
1
0
.
2
0
0
8
.
0
1
.
2
0
0
8
.
0
4
.
2
0
0
8
.
0
7
.
2
0
0
8
.
1
0
.
2
0
0
9
.
0
1
.
2
0
0
9
.
0
4
.
2
0
0
9
.
0
7
.
2
0
0
9
.
1
0
.
2
0
1
0
.
0
1
.
2
0
1
0
.
0
4
.
Hungarian banks
Hungarian companies
Foreign banks
Foreign companies
In terms of the value of transactions, the Hungarian currency market is
dominated by swap transactions, which accounted for 65% of the total value
of transactions in 2006. With a share of 29%, spot transactions also represent
a sizeable weight, while forward transactions and options are significantly
behind these, accounting for just 4 and 2% of total volumes respectively.
Hungarian banks conclude most of their transactions with foreigners in the spot,
option and FX-swap segments, while in simple forward transactions it is
domestic non-banking participants that are most active.
0
2
0
0
5
.
0
5
.
2
0
0
6
.
0
1
.
2
0
0
6
.
0
9
.
2
0
0
7
.
0
5
.
2
0
0
8
.
0
1
.
2
0
0
8
.
0
9
.
2
0
0
9
.
0
5
.
2
0
1
0
.
0
1
.
2
0
0
5
.
0
9
.
2
0
0
6
.
0
5
.
2
0
0
4
.
0
1
.
2
0
0
4
.
0
9
.
2
0
0
4
.
0
5
.
2
0
0
5
.
0
1
.
2
0
0
7
.
0
1
.
2
0
0
7
.
0
9
.
2
0
0
8
.
0
5
.
2
0
0
9
.
0
1
.
2
0
0
9
.
0
9
.
2
0
1
0
.
0
5
.
200
400
600
800
1000
1200
1600
1800
2000
1400
Breakdown of the Hungarian currency market by transaction type
daily
turnover
in
HUF
billion
Spot transactions
Foward transactions
Swap transactions
Options
12

If we analyse Hungarian trading by currency pair, we see, not surprisingly, that
more than fifty percent of turnover comes from trading in EUR/HUF,
followed by EUR/USD second, and USD/HUF third. Owing to credit
transactions, CHF/HUF and EUR/CHF currency pairs also claim a sizeable slice of
the pie.
The Hungarian currency market is typically liquid between 9 a.m. and
4 p.m. In terms of the number of transactions, there is negligible activity before
official Hungarian working hours begin, while trading picks up significantly between
9 and 11 a.m. The MNB fixing at 11 a.m. is followed by a gradual decline, and thus
the number of transactions falls to the local minimum between 1 and 2 p.m., but
between 3 and 4 p.m. transaction numbers rise again, to reach the second highest
peak of the day.
Most of the offers submitted by dealers on the interbank market are around
the EUR 1 million in volume. The average offer volume is EUR 1.6 million, while
the size of concluded deals is lower, at around EUR 1.2 million.
Breakdown of spot transactions by currency pair (2009)
EUR/HUF
EUR/USD
USD/HUF
CHF/HUF
EUR/CHF
Other
13

Various conventions have emerged in relation to the operations of the currency
market, of which the following are the best known:
• Trade date: the day of the transaction
• Value date, settlement date: the day of financial settlement
• Spot transaction: a transaction concluded on a particular day on the interbank
market is settled on T+2 day; this transaction is described as an ordinary spot
transaction.
• Prompt transaction: a transaction in the case of which the financial settlement
also takes place on the transaction day.
• Base currency/quoted currency: The exchange rate of two currencies
compared to each other, expressing the value of the quoted currency in one unit
of the base currency. (In certain currencies quotes are expressed for 100 units.)
• Relative strength of currencies - EUR>GBP>AUD>NZD>USD: The
exchange rate between two currencies is quoted in such a way that the base
currency (which is the stronger currency) comes first. (For example, the EUR
exchange rate always shows what the value of 1 EUR is expressed in the quoted
currency.)
• Bid (rate): The exchange rate at which the bank purchases a currency.
• Offer (rate): The exchange rate at which the bank sells a currency.
• Bid-offer spread: The difference between the bid and the offer rates.
• Quoting/decimals: In line with market conventions, generally exchange rates
below 10 are quoted to 4 decimal points, while exchange rates over 10 are
quoted to 2 decimal points.
• Pips: The smallest unit change in the exchange rate.
• Big figure: The first three digits of the exchange rate.
• Long position: An investor in a long position is hoping for an increase in the
exchange rate.
• Short position: An investor in a short position is hoping for a decrease in the
2. 1. 4.
Market
conventions
14

16
2. 2. 1.
The money market
2. 2. 2.
The bond market
Temporal mismatches in funding are the basis for the definition of credit and equity
transactions.
The money market is the market for debt instruments with maturities of less than 1
year, and includes treasury bills, the interbank money market and bills of exchange.
The capital market is the market for bank loans, bonds and shares maturing in
more than 1 year.
The most determinant interest rate in the money market at any given time
is the central-bank base rate, which in Hungary currently (since 2007) means
the interest on 2-week bonds issued by the MNB. The commercial banks operate
according to one-month reserve periods, and the two-week maturity allows them to
modify the positions within a given month. The base rate is one of the most
important monetary tools at the disposal of the central bank. The
commercial banks may place their spare funds with the MNB at this interest rate.
The central bank’s aim is to ensure that the central-bank policy rate is as much in line
with prevailing money market rates as well as expectations at any given time.
The main benchmark interest rate of the Hungarian money market is
BUBOR, which the MNB has published every day, for various maturities, since
1996 based on the averaged quotations of the commercial banks – similarly
to the practice in the more developed countries. BUBOR provides a transparent
benchmark for the interest rates of credit and deposit transactions on the interbank
market, and is used as a reference for pricing corporate loans.
The Hungarian State is the only true regular issuer and substantive participant in
the Hungarian bond market. Apart from the State, banks, financial institutions and
occasionally companies also issue bonds, but in much smaller volumes and far less
frequently.
2. 2.
Money and capital markets

17
2. 2. 2. 2.
Primary
Dealer
System
Government securities embody the debt of the central government. The Hungarian
State regularly issues government securities to finance the budget deficit and
renew maturing debt, which may be purchased by the participants in the economy
– including the public – generally under market conditions.
In Hungary the task of the State Debt Management Agency (Hungarian
abbreviation: ÁKK) is to provide the financing of the central budget by
performing domestic and international fundraising operations, i.e. it organises and
implements government securities auctions and subscriptions.
For ÁKK Zrt. the size of the national debt is essentially an external feature
determined by prevailing economic policy, similarly to the financing requirement of
the budget. ÁKK Zrt. is not in a position to influence the magnitude of these figures
to any substantive degree; it only tries to reduce the cost and risks of the
debt by elaborating an appropriate debt structure.
To ensure transparency and liquidity, ÁKK Zrt. issues relatively few, easily
manageable instruments, known by investors, in a market-compliant manner.
With regards to bonds issued in foreign currency, there are no key dealers as such;
each issue is arranged by lead-manager investment banks and credit institutions
specifically selected on a case-by-case basis for each transaction.
Almost all HUF government securities are sold within the primary dealer
system. The function of the primary dealer system is to create a sounder basis
for budget deficit financing, and to reduce the cost of financing through market
mechanisms. In addition, an important objective when elaborating the system was
to improve the transparency and liquidity of the secondary government securities
market.
One of the main tasks of the primary dealers is to participate in the auctions of
publicly issued government bonds and discount treasury bills by making regular
auction offers. Another important task of theirs is to publicly quote purchase
and sale prices for a specific group of government securities, thus ensuring the
liquidity and transparency of the market, and regular access to government
securities by investors, since it is extremely important for investors that they be able
to easily sell the government securities held by them before maturity.
2. 2. Money and capital markets
2. 2. 2. 1.
The role of ÁKK
Zrt. (State Debt
Management Agency)
in the management
of the national debt

18
2. 2. 2. 4.
Secondary market
2. 2. 2. 3.
Auctions
Breakdown of primary dealers’ secondary-market
government bond trading by investor segment in Q1 2010
Foreigners 29,6%
Institutional investors 19,8%
Government 0,3%
Companies 3,0%
Primary dealers 17,6%
Investment enterprises 2,3%
Credit instits 27,2%
Households 0,2%
ÁKK Zrt. issues 3, 5, 10 and 15-year HUF mainly fixed-interest government bonds.
The bond auctions are held fortnightly, on Thursdays declaring the amount of issued
bonds.
The 3 and 12-month discount treasury bills are short-term instruments mainly for
liquidity management purposes. By increasing the issued amount, ÁKK Zrt. may
smooth the liquidity swings caused by short-term fluctuations in the demand for
financing.
Three-month discount treasury bill auctions are organised each week on Tuesday,
and 12-month discount treasury bill auctions take place fortnightly, on Thursdays.
The auctions are settled for all securities, regardless of their term, on Wednesday of
the subsequent week.
The majority of government securities are traded on the secondary market. The
main participants in the secondary market are the Dealers referred to above and
the “ultimate investors” (institutions, companies, municipalities and private
individuals).
The two main types of trading conducted in respect of government securities are
stock-market trading and OTC trading. Over the course of recent years,
the relative importance of trading on the stock exchange has declined (a trend that
is characteristic of all other international bond markets as well). To help ensure the
liquidity of the secondary market, ÁKK imposes a regular price-quoting obligation on
the Primarily Dealers, both for stock-exchange and OTC trading.
Figure 5 (source: ÁKK, 2010 Q1 government securities report)

19
2. 2. 3.
The equity market
A share is a security issued by a joint-stock company, representing
membership rights. The share represents a portion of the registered
capital of the company, as reflected in its face value. The shareholder is entitled to
membership, minority and property rights through his or her securities.
Membership rights of a shareholder:
• the shareholder may participate in the annual general meeting of the Company,
that is, he may request information, make comments and proposals, and may vote,
• the shareholder may challenge and monitor general meeting resolutions,
• the shareholder has a right to indemnification against the founders, members
of the Supervisory Board and directors.
Minority rights:
Shareholders holding one tenth of the votes have the right to:
• convene a general meeting,
• have an issue placed on the agenda of the general meeting and,
• review the activities of the management.
Property rights of a shareholder:
• right to dividend: the proportionate part per share of the company’s balance
sheet profit,
• right to a share upon liquidation: a proportionate amount of the assets
remaining after the satisfaction of third-party claims in the event of the dissolution
of the joint-stock company without legal successor, available for distribution.
It is a minimum requirement for the exercising of shareholder rights
that the particular share be in the ownership of the shareholder on a specified
day prior to the given corporate event (the closing, or cut-off day). The cut-off
day is determined in the Regulations of KELER Zrt. (the Central Clearing House
and Depository, Budapest) and, unless otherwise specified, is 5 settlement days
prior to the date of the given corporate event (i.e. the date of the general meeting
or the first day of dividend payment). However, in order for the share to be in
the ownership of the shareholder on this day, it must be purchased on the stock
exchange no later than a number of days earlier than the number of days of the
settlement cycle of the particular market (on the Hungarian market, this is currently
3 days); in other words, the share must be purchased on the stock exchange 8
settlement days in advance in order for the shareholder to be able
to exercise the rights associated with it.
With regard to dividend payment, those who purchase the shares no later than 8
settlement days before the announced initial day of dividend payment are still entitled
to a dividend, but by the time 7 settlement days have been reached before
the initial day of dividend payment, shares are already traded on the
BSE (Budapest Stock Exchange) without any right to dividend.
2. 2. 3. 1.
Shares

20
2. 2. 3. 2.
Share indices
According to type, a share may be:
• an ordinary share: providing all the rights listed above,
• a preferential share: providing preference with regard to certain shareholder
rights, generally by limiting other shareholder rights,
• interest bearing share: the shareholder is entitled to interest from the after-
tax profit based on the face value of the share, at a predefined rate,
• employee share: shares issued to the employees of the joint-stock company
free of charge or at a preferential price.
Unlike a bond, a share does not have a maturity date, and therefore investors can
recover their investment or part of it by selling the security.
Shares are a risky type of investment, as they do not have a fixed yield, and
therefore, depending on the development of the share price, the investor may end
up with a considerable profit or loss.
Already issued securities may be publicly bought and sold on the concentrated
market of the stock exchange, where demand and supply meet on a large scale
in one place and at the same time. Only securities that comply with the rules of
the stock exchange can be traded on the bourse.
The purpose of creating an index is to compress the information available on
a particular market into one indicator. Changes in the value of the index reflect the
latest state of the market, and allow conclusions to be drawn regarding the
dominant price movements. The share indices show the average variation of
the prices of the securities traded on the exchange.
The official share index of the Budapest Stock Exchange is the
BUX, which is calculated in real time, every 5 seconds, based on the latest market
prices. When determining the weight of the shares included in the index basket, the
BSE performs a free float-based weighting. The BUX is a performance index, and
accordingly, the amount of dividend paid on the shares contained in the basket is
reinvested into the shares at the time of dividend payment. The base of the index
was 1,000 points on 2 January 1991.
The Budapest Stock Exchange has been regularly calculating the BUMIX index,
comprising companies with medium capitalisation (mid-cap stocks), since 1 June 2004.
The official name of this index is the Budapest Stock Exchange Mid and Small-Cap Share
Index, with BUMIX being its official abbreviation. The base of the index was established
at 1,000 points as its initial value on 5 January 2004. Like the BUX, the BUMIX is a
performance index. The basket of the index contains some overlap with the basket of
the BUX. Only share series of companies whose free float-adjusted market capitalisation
does not exceed HUF 1,000 billion may be admitted to the BUMIX basket.
Of the major indices of the foreign stock exchanges, the world market focuses on
the New York Dow Jones Industrial Average and the Standard and Poor’s indices,
the London FTSE, the Frankfurt DAX and the Tokyo Nikkei indices.

21
2. 2. Pénz- és tőkepiacok

23
Currency transaction turnover of brokerage firms on the derivative market, based on 2008 annual figures
RAIFFEISEN 100,0%
SWAP Tôzsdeügynöki Rt. 77,4%
EQUILOR Befektetési Rt. 58,9%
Hungarograin Tôzsdeügynöki
Szolgáltató Rt. 53,8%
Országos Takarékpénztár
és Kereskedelmi Bank Rt. 37,1%
Hamilton Tôzsdeügynökség Rt. 33,3%
ERSTE Bank Befektetési Rt. 30,9%
Magyar Külkereskedelmi Bank Rt. 28,2%
Cashline Értékpapír Rt. 22,7%
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Buda-Cash Brókerház Rt. 56,8%
3.
Raiffeisen Treasury
Ranking of commercial banks, based on 2010 conversion data
1. RAIFFEISEN 100.00%
2. CIB-H 70.70%
3. ING 68.39%
4. OTP 54.05%
5. UNICREDIT 42.42%
6. KERESKEDELMI ÉS
HITELBANK 37.80%
7. MKB 35.82%
8. CITI 18.67%
9. COMMERZ 14.93%
10. TAKARÉKBANK 13.96%
11. BNP 7.07%
12. BUDAPEST BANK 6.64%
13. CREDIT AGRICOLE 5.41%
14. DEUTSCHE 4.34%
15. MFB 3.24%
16. MAGYARORSZÁGI
VOLKSBANK 2.87%
17. BANCO POPOLARE 1.44%
18. OBERBANK 1.22%
19. ALLIANZ 1.15%
20. KDB 0.74%
21. SOPRON BANK 0.64%
22. FHB 0.48%
23. FORTIS 0.26%
24. GRÁNIT BANK 0.15%
25. EXIMBANK 0.14%
26. MERKANTIL 0.12%
27. BANK OF CHINA 0.07%
28. HANWHA 0.06%
29. AXA 0.04%
30. KINIZSI 0.02%
31. DRB BANK 0.02%
32. MAGYAR CETELEM 0.02%
33. MOHÁCSI
TAKARÉK BANK 0.01%
34. BANK+BANK 0.01%
35. PORSCHE BANK 0.01%
The Treasury of Raiffeisen Bank is one of the largest Treasuries in Hungary,
whose activities encompass the entire spectrum of the financial market.
The Bank is an active participant in the stock exchange and OTC segments of the
currency market, and also trades in government securities and shares.
The Bank was first in 2006 in the trading turnover rankings published
the MNB on the basis of monthly conversion data, as is shown in the table and
graph below.
Figure 6 (source:www.mnb.hu)
Partly in relation to the Austrian parent bank, and partly based on the large
turnover it transacts, Raiffeisen Treasury has excellent international relations,
which are used effectively in daily trading to the satisfaction of its customers.
Raiffeisen Bank is also an enviable position in the Budapest Stock Exchange’s
currency trading turnover rankings.
Figure 7 (source www.bet.hu)

24
The structure of Raiffeisen Treasury was designed to ensure it would be able
to satisfy its customers’ requirements, according to their particular interests, to
the greatest extent possible. Within Treasury, there are four groups, known as
desks, at your disposal, each specialised in a different segment of the
financial market:
• The Fixed Income Desk deals with the sale of government securities and
corporate bonds.
• The Currency Trading Desk assists you on the currency market, in stock-
exchange and OTC currency transactions (conversions, futures/forwards,
options).
• Customers interested in shares can trade on the Hungarian and foreign bourses
through the Equity Desk.
• Customers interested in the latest offerings available on the financial market,
and in accessing favourable facilities (deposits and loans), are provided with the
latest information and product suggestions by the Structured Desk.
3. Raiffeisen Treasury

27
4. 1.
Conversion
4. 1. 2.
T, T+1, T+2 day
customised rate
conversion
The Bank quotes its official exchange rate applied to the settlement of commercial
transfers between 1:30 and 2:30 p.m. on each business day (a process known
as ‘fixing’). The exchange rate is based on the prevailing interbank market
rate, valid at the moment of quotation.
Customers may submit their conversion requests to the Bank on paper by
10 a.m. and electronically by 12 a.m. Consequently, the conversion rate
will only be disclosed to customers after fixing. Through fixing, ordinary (T+2
value-date), urgent (T+1 value-date) and extra urgent (T-day) conversions
may take place, and the Bank charges a different conversion commission on the
transactions depending on the value date.
Besides conventional currency conversion, where the conversion is executed
at Raiffeisen Bank’s same-day official (fixing) rates, conversions may also be
performed at a customised rate, so-called market rate.
The value date of a spot conversion is the second banking business
day after the transaction date. Treasury purchases or sells the amount the
customer intends to convert on the interbank market immediately, and then quotes
a price to the customer accordingly.
In practice, a conversion is often needed on T or T+1 day, which is shorter than
the spot value date (T+2), in which case a negative outright transaction may
be used, the rate of which is the sport (T+2) rate adjusted with interest.
On the interbank market, the price is a continuously changing factor, affected by
demand and supply, and therefore the momentary price may differ from
the current day’s fixing, either in a positive or in a negative direction.
The minimum amount of an individual conversion at customised rate is EUR
50,000, or an equivalent amount expressed in another currency.
4. 1. 1.
The Official
exchange rates of
Raiffeisen Bank

28
The conversion rate may be optimised from the point of the customer through
what are known as limit price orders, or simply ‘limit orders’, which the Bank can
accept in respect of an amount of at least EUR 100,000, or the equivalent in
another currency.
There are two basic types of limit orders: firm and call orders.
Product description
With a firm order the customer instructs the Bank to make a conversion
at an exchange rate defined by the customer, which is more favourable than the
currently effective market rate, provided that the exchange rate reaches the
required level within the effective term of the order. A firm order may be valid
until a specific time (e.g. 4 p.m. on 07. 12. 2011) or until cancellation.
Customers are notified of the status of the order by phone.
Example
Let’s assume that EUR 100,000 export revenues are credited to your account,
and you will need the forint equivalent of this amount in no later than one week’s
time. The current market rate is 260.00 EUR/HUF; however, you would like to
achieve an exchange rate of 262.00.
You give a firm order to the Bank to convert EUR 100,000 into HUF at an
exchange rate of 262.00, provided that the exchange rate reaches the 262.00
within one week.
Let’s assume that in 3 days’ time the exchange reaches or exceeds 262.00, at
which point the Bank notifies you by phone that the order has been executed: the
Bank has converted EUR 100,000 into HUF at the 262.00 exchange rate.
If the 262.00 exchange rate is not achieved on the market in 1 week by 4 p.m.,
the order automatically loses effect. Then you can convert your export revenue at
the current market rate.
Advantages of a firm order:
• Onthe24-hourmarket,theconversionmayalsotakeplaceatthefavourableexchange
rate if the exchange rate reaches the required level outside dealing hours.
4. 2. 1. 1.
Firm order
4. 2.
Offers to exporters
4. 2. 1.
Limit-price
order

29
• A high exchange rate, valid for a short period, may be reached in an
extremely volatile market.
• If the market moves in an unfavourable direction, you can minimise your loss
with a firm order. Here, the customer instructs the Bank to make the conversion
if the exchange rate drops to a level that is lower than the currently effective
market rate.
• The customer does not need to monitor the exchange rate, as the Bank
does this for him.
• No cost: this service is available free of charge.
Disadvantages of a firm order:
• Commitment on the part of the customer: the conversion takes place
automatically when the specified exchange rate is reached, and therefore the
customer cannot change his original decision based on any new information.
Product description
With a call order the customer instructs the Bank to notify him if and when
an exchange rate specified by the customer is reached.
Example
Based on the situation described above, you give a call order to the Bank,
instructing it to notify you if the 262.00 exchange rate is reached on the market.
Let’s assume that in 3 days’ time the exchange rate is higher than 262.00, at
which point the Bank notifies you by phone that the 262.00 exchange rate has
been reached. If you find this exchange rate acceptable, you may convert the EUR
100,000 amount at the 262.00 exchange rate.
Advantages of a call order:
• Customers may decide whether or not to implement the conversion
at a particular exchange rate based on any new market information.
• No cost: this service is available free of charge.
Disadvantages of a call order:
• The customer can only attain exchange rate levels that are valid during
dealing hours – he cannot take advantage of the opportunities available on
the 24-hour currency market.
4. 2. Offers to exporters
4. 2. 1. 2.
Call order

30
• In a rapidly changing market the exchange rate may suddenly move in
an unfavourable direction, and by the time the customer is contacted the
Bank may no longer be able to make the conversion at the specified rate.
When do we recommend it?
If you expect the forint to strengthen.
•
If do not expect any major weakening of the forint.
•
If you have a target exchange rate (e.g. the exchange rate used for financial
•
planning), for which the offered forward rate is acceptable.
If you can apply the forward rate in the pricing of products and services.
•
Product description
A forward transaction is the simplest way to eliminate exchange rate risks, by
allowing our customers to fix the future rate of a particular currency. In a
forward transaction, the transaction amounts, the exchange rate and the maturity
are fixed at the time of the transaction, but financial settlement only takes place on
the maturity date (over T+2 days). The Bank enters into forward transactions for a
minimum of EUR 50,000 or an equivalent amount in another currency.
The relationship between the forward rate and the actual spot (T+2 day) rate is
determined by the difference in the interest rates for the applicable term.
Example
Let’s assume that your foreign partners will pay EUR 50,000 to you in 3 months’
time. You are concerned that the forint may strengthen, so you would like to eliminate
the exchange rate risk inherent in the transaction, and therefore you wish to sell the
EUR 50,000 that will be receiving in the future in the framework of a forward
transaction.
Treasury quotes a forward rate to you, as described below:
Forward rate = Current spot rate + swap points for the term
Forward rate = 260.00+2.70=262.70
Consequently, you sell EUR 50,000 to the Bank at a rate of 262.70 for a term of
3 months.
In 3 months’ time the EUR 50,000 will be converted to HUF at this 262.70 rate,
fixed in advance, regardless of the market rate.
4. 2. 2.
Forward
transaction

31
-10
-6
-8
-4
-2
0
2
6
4
10
8
Forward transaction
Profit/loss
Exchange rate at maturity
258 263 268 273
253
4. 2. 3.
Flexi forward
Figure 8
Advantages of a forward transaction:
Elimination of the exchange rate risk,
• known conversion rates.
As long as, for the given term, the forint interest rates are higher than the foreign
•
currency interest rates, the forward rates are more favourable than the current
market rates, i.e. the interest rate differenence, is working in favour
of the exporters.
The transaction may be
• concluded for any business day.
AbovethethresholdvalueofEUR50,000ahedgingtransactionmaybeconcluded
•
for any amount, and rounding of the amounts is not a requirement.
• closed again with an equal and opposite transaction,
under the valid market terms and conditions.
No cost:
• the exchange rate contains all expenses, and the customer does not
have to bear any other costs.
Disadvantages of a forward transaction:
• A forward transaction is an unconditional commitment both on your own
part and on the part of the Bank. Regardless of the market rate at maturity, you
must sell the currency at the agreed rate, and therefore you will not be able to
profit from any major weakening of the forint (exchange rate increase).
If the breakdown of your foreign-currency income cannot be precisely predicted
•
in terms of their timing.
If you expect a strengthening of the forint.
•
If no major weakening of the forint is expected.
•
If you have a target exchange rate, for which the offered forward rate is
•
acceptable.
•

32
Product description:
A flexi forward is a forward transaction where the maturity is not a single
point of time in the future, but a predefined time period (maximum 1 month)
during which the exchange rate quoted by Treasury will be effective. Financial
settlement takes place either during the period (through an ‘early termination’ of
the transaction) following the customer’s request, or automatically, on the last day
of the period.
Example
Let’s assume that, depending on when your foreign partners pay, you expect EUR
150,000 in sales revenue to hit your account in 3 months’ time at the earliest, and
at the latest in 4 months’ time. You are concerned that there may be a strengthening
of the forint and would like to offset the exchange risk inherent in the transaction. At
the same time you intend to convert you revenue receipts into forint on the day they
are credited. Raiffeisen Bank’s Treasury recommends a flexi forward to you.
The exchange rate quoted by Treasury for a period from 3 months to 4 months is
as described below:
Flexi forward exchange rate = Current spot rate + interest spread for the term
Flexi forward exchange rate = 260.00 + 2.70 = 262.70
Consequently, you sell EUR 150,000 to the Bank in a flexi forward transaction at
an exchange rate of 262.70 for a term from 3 months to 4 months.
3 months later EUR 50,000 arrives from your foreign partners and is credited on
your current account. You notify Treasury by phone asking it to convert EUR 50,000
into forint at the agreed 262.70 exchange rate, charged to your fixed flexi forward
transaction. Treasury performs the conversion after the notification.
3 months and 1 week later a further EUR 70,000 is credited to your account,
which is converted as described above.
On the last day of the period, i.e. 4 months after the deal was concluded, the Bank
automatically converts the remaining EUR 30,000 (150,000-50,000-70,000) at
the agreed 262.70 exchange rate.
Special advantages of a flexi forward transaction:
The exchange rate risk related to
• revenues that are not entirely
predictable in terms of their receipt may also be hedged.
The
• term may be defined according to your requirements, starting from a
2-day flexi forward to longer, maximum 1-month, flexi forward transactions.

33
A flexi forward also makes what is known as a
• partial maturity possible;
in other words if part of the fixed amount is available at the beginning of the
term, that partial amount may be converted, while the remaining amount will be
converted later. The minimum amount of a partial maturity is EUR 50,000.
Multiple partial maturities
• are also possible.
You do not expect any extreme strengthening or weakening of the forint.
•
If you wish to achieve a more favourable exchange rate than the classic-forward
•
rates, and are willing to assume an additional risk for this.
If you have a target exchange rate, for which the offered forward rate is acceptable.
•
Alongside ordinary forward transactions, in order to improve the average
•
exchange rate.
Product description
A knock-out forward is a forward transaction that includes an exchange rate level
(knock-out/KO level) which, if reached by the interbank market quotations at
any time during the term, will automatically result in the termination of the
transaction. The amount of the transaction may be a minimum EUR 200,000
or the equivalent in another currency.
Example
Let’s assume that your business partner will pay EUR 200,000 to you in one
year’s time. The market exchange rate is 260.00 EUR/HUF. You are concerned
that there might be a slight strengthening of the forint, and therefore you intend to
enter into a hedging transaction for this EUR 200,000 future revenue, yet you do
not expect any major strengthening of the forint in the next year.
Raiffeisen Bank’s Treasury recommends a KO forward transaction to you.
Compared to the 270.06 classic forward rate, you can fix a 277.00 forward rate
for 1 year, with the condition that during the term the interbank market quotations
do not reach an exchange rate level of 245.90 EUR/HUF.
Let’s assume that by 12 a.m. on the 2nd
working day before the maturity date, the
EUR/HUF quotations on the interbank market have not reached the 245.90 KO
rate. In this case, you will convert EUR 200,000 into HUF at a 277.00 exchange
rate in 1 year’s time regardless of the exchange rate on that day.
4. 2. 4.
Knock-out
forward

34
-10
10
0
20
KO forward
30
Profit/loss
245,9 255,9 275,9 285,9
235,9 265,9
4. 2. 5.
No-touch
forward
Let’s assume that 3 months after the transactions the interbank market quotations
reach the 245.90 exchange rate. The Bank notifies you that the KO forward
transaction has terminated; you can wait for a more favourable exchange rate (i.e. a
weaker HUF), or you can decide to enter into a new forward hedging transaction.
Figure 9
Advantages of a knock-out forward transaction:
The knock-out forward rate is always
• more favourable than the classic-
forward rate.
No cost:
• the exchange rate contains all expenses, and the customer has no
other costs to bear.
Disadvantage of a knock-out forward transaction:
In exchange for a more favourable rate, the transaction involves a
• higher risk
because the coverage may be lost if unfavourable developments occur in the
market (e.g. a major strengthening of the forint).
•
•
rates, and are willing to assume additional risk for this.
No major strengthening of the forint is expected, but you wish to cover your
•
exposure in case this does happen.
•
Product description
A no-touch forward (NT forward) transaction is a forward transaction that offers
a more favourable exchange rate (primary exchange rate) than the
classic-forward rate under the conditions that during the term the interbank market

35
NT forward
-10
0
10
20
Profit/loss
256 261 271 276
251 266
P/L NT1 exhange rate
P/L NT2 exhange rate
quotations do not reach a predefined exchange rate level (touch level/no-touch
level). If at any time during the term the interbank market quotations reach the no-
touch level, then the forward rate will be modified to a predefined secondary
exchange rate level, which is less favourable than the classic-forward rate. The
minimum transaction amount is EUR 200,000 or an equivalent amount in another
currency.
Example
Let’s assume that your business partner will pay EUR 200,000 to you in one
year’s time. The market exchange rate is 260.00 EUR/HUF. You are concerned that
there might be a strengthening of the forint, and therefore you wish to conclude a
hedging transaction for the EUR 200,000 future revenue, yet would like to have a
more favourable exchange rate than the classic-forward rate.
Raiffeisen Bank’s Treasury recommends an NT forward transaction to you.
Compared to the 270.06 classic-forward rate, you can fix a 275.00 primary rate
for one year, with the condition that during the term the interbank market quotations
do not reach a 251.00 EUR/HUF exchange rate. If this exchange rate is touched,
the forward rate will be modified to 265.00.
business day before maturity the EUR/
HUF quotations on the interbank market have not touched the 251.00 KO level. In
this case you convert EUR 200,000 into at a 275.00 exchange rate in 1 year’s
time, regardless of the exchange rate on that day.
Let’s assume that 3 months after the transaction, the interbank market quotations
touch the 251.00 exchange rate. The Bank notifies you that the secondary exchange
rate has become effective: the exchange rate of the NT forward transaction has
been modified to 265.00. You still convert EUR 200,00 into HUF at 265.00
exchange rate in 1 year’s time regardless of the exchange rate of that day.
Figure 10

36
Advantages of a no-touch forward transaction:
A more favourable exchange rate
• may be achieved than the classic
forward rate.
No cost: the exchange rate contains all expenses, and a customer
•
has no other costs.
Coverage
• is not terminated even if unfavourable processes occur on the market.
Disadvantage of a no-touch forward transaction:
In exchange for a more favourable rate, this transaction involves a
• higher risk,
because in the event that negative processes occur on the market (e.g. a major
strengthening of the forint) the transaction changes into a transaction concluded
at a less favourable exchange rate.
•
If you do not expect any major weakening of the forint.
•
•
acceptable.
Product description
A forward extra transaction is a complex transaction, which provides a put
option to the customer at a specified strike price for a specific future time, as
long as the interbank quotations do not reach a predefined knock-in (KI)
level, in which case the transaction changes into a forward transaction
(commitment).
Example
Let’s assume that you will have EUR 100,000 in revenue in 3 months’ time. The
current exchange rate is 260.00 EUR/HUF. You wish to hedge against your exchange
rate risk arising from the strengthening of the forint, but at the same time you would
also like to profit from a favourable exchange rate level resulting from a possibly
weaker forint. Raiffeisen Bank’s Treasury offers a forward extra transaction to you.
Within the framework of a 3-month forward extra transaction you sell EUR
100,000 at an exchange rate of 260.00, with a 275.00 EUR/HUF KI level.
In 3 months’ time the following outcomes are possible, depending on the EUR/
HUF exchange rate during the term:
4. 2. 6.
Forward Extra

37
Forward Extra
-15
-10
0
10
5
-5
Profit/loss
255 260 270 275
250 265 Forward transaction
Put option
• The forint remains stable and strong throughout the term, and the interbank
quotations have not reached the 275.00 exchange rate level: the strategy
represents a right to sell.
• If at maturity the actual exchange rate is below 260.00, you exercise your
right to sell and sell EUR 100,000 at a 260.00 exchange rate on T+2 day
• If the market rate is higher than 260.00 you do not exercise your put option
and the transaction is concluded at the market rate (between 260 and 275).
• If the forint weakened during the term and the interbank quotations have reached
the 275.00 exchange rate, then the transaction changes into a forward transaction
at a rate of 260.00, i.e. upon maturity you sell your EUR at an exchange rate of
260.00 regardless of the prevailing market rate.
Figure 11
Advantages of a forward extra transaction:
It protects
• against any negative exchange rate movements.
Cost free
• strategy.
It is an exchange rate hedging instrument in the managing of risks, which may be
•
customised based on expectations and exchange rate risks.
Disadvantage of a forward extra transaction:
If the KI level is reached, it is not possible to take advantage of the favourable
•
exchange rate.
On an uncertain market, where extreme exchange rate movements are also
•
possible.
•
4. 2. 7.
Participating
forward

38
Participating forward P/L
-5,0
0,0
5,0
10,0
Profit/loss
Exchange rate on maturity
254,8 259,8 269,8
249,8 264,8
Product description
A participating forward is a forward transaction in which the customer gains
the right to swap a currency for another currency at a particular exchange rate at
a future time. If at the future time the market rate is less favourable than the
participating forward rate, then the total agreed currency amount is
converted. On the other hand, if the market rate is more favourable than
the participating forward rate, then only half of the agreed amount must
be converted. The remaining currency amount may be converted at the prevailing
market rate. The minimum transaction amount is EUR 200,000 or an equivalent
amount in another currency.
Example
time. The market rate is 260.00 EUR/HUF. You think that the market situation is
very uncertain and major changes are possible in any direction, and therefore you
would like to hedge against the exchange rate risk of the transaction free of any
costs. Raiffeisen Bank’s Treasury offers a participating forward transaction to you.
You sell EUR 200,000 against HUF (standard forward rate: 262.70) at a 259.80
participating forward rate for a term of 3 months.
In three months’ time (at 12 a.m.) the following outcomes are possible depending
on the actual EUR/HUF rate:
The actual market rate is below 259.80, and thus you sell the total EUR 200,000
•
to the Bank at a rate of 259.80 on T+2 day.
The actual market rate is above 259.80 (e.g. 265.00). You sell EUR 100,000 at
•
a rate of 259.80 on T+2 day, and you may sell the remaining EUR 100,000 at
the current market rate, i.e. EUR 265.00.
Figure 12

39
Advantages of a participating forward transaction:
Total
• protection against negative exchange rate movements (below the
participating forward rate).
Participation in any positive exchange rate movement
• .
No cost: the exchange rate contains all expenses, and the customer
•
has no other costs to bear.
Disadvantage of a participating forward transaction:
The participating forward rate is always
• less favourable than the classic
forward rate, because the transaction allows you to participate in any
favourable exchange rate movement.
The European-style currency option (hereinafter: option) is a sale and purchase
agreement in which the option buyer gains the right to buy or sell currency at a
specific future time against another currency at a predefined exchange rate (strike
price). The option buyer pays a premium to the option seller for the
option right and the option seller assumes an obligation towards the buyer
to buy or sell. The minimum transaction amount is EUR 100,000 or an
equivalent amount in another currency.
There are two types of options:
call option
• , which provides a purchase right to the option holder in respect of
the base currency,
put option
• , which provides a right to sell to the option holder in respect of the
base currency.
If you are concerned that there might be a strengthening of the forint, but you
•
haven’t ruled out the possibility of a stable weaker forint either.
In the case of contingent foreign-currency revenues for which you would like an
•
assured exchange rate without any commitment.
If the internal hedging policy allows hedging that involves a cost.
•
4. 2. 8.
European-style
option
4. 2. 8. 1.
Purchase of
a put option

40
Put option
-5
-3
3
9
7
5
1
Profit/loss
255,00 270,00
250,00 285,00
P/L
P/L modified with the option fee
260,00
Product description
By purchasing a put option our customer gains the right to sell a certain
quantity of currency at a fixed exchange rate against another currency. Upon
maturity our customer may decide, depending on the actual market rate,
whether or not he intends to exercise his right to sell at the specified strike price.
Example:
time. The market rate is 260.00 EUR/HUF. You are concerned that there might be a
substantial strengthening of the forint in the meantime, and therefore you would like
to conclude a hedging transaction for this EUR 100,000 future revenue, but you’re
not entirely sure that the forint won’t remain stable and weak.
Raiffeisen Bank’s Treasury offers you a put option. You buy a 3-month EUR put
HUF call option for EUR 100,000 at a 260.00 strike price, for which you pay a
premium of 3 HUF/EUR, i.e. HUF 300,000. (The premium amount is blocked on
your account at the time of the transaction and is debited on the second business
day after the transaction).
In three months’ time (at 12 a.m.), the following outcomes are possible depending
The actual EUR/HUF rate is below 260.00 (e.g. 255.00), you exercise your right
•
to sell and sell EUR 100,000 at a rate of 260.00 with a T+2 value date.
The actual EUR/HUF rate is above 260.00 (e.g. 262.00). You do not exercise
•
your right to sell and if necessary, you can sell the currency at the actual
market rate.
Figure 13

41
Advantages of a put option:
It represents a
• level of protection, thus it can limit any loss arising from any
unfavourable exchange rate movement.
As
• it does not involve any obligation, only a right, it allows you to make
use of any opportunity arising from favourable exchange rate movements.
Disadvantage of a put option:
Purchasing a put option
• involves a cost.
On a stable market, where the exchange rate is fluctuating within a relatively
•
narrow band.
If you have a target exchange rate, for which the offered forward rate is acceptable.
•
Product description
By selling a call option our customer assumes an obligation to sell a
certain amount of currency against some other currency at a fixed exchange rate.
Upon maturity the customer must fulfil his obligation to sell depending on the
current market rate, and receives an option premium from the option
buyer in exchange for his commitment.
Example:
Let’s assume that in 3 months’ time you will have EUR 100,000 revenues. An
exchange rate of 265.50 would suit your plans, but the actual market rate is
260.00 EUR/HUF. As you expect a stable EUR/HUF exchange rate Raiffeisen
Bank’s Treasury recommends that you write a call option.
You issue a 3-month EUR purchase HUF sale option for EUR 100,000 at a
265.50 strike price, i.e. you assume an obligation to sell at a rate of 265.50, for
which you will receive a premium of HUF 3/EUR, i.e. HUF 300,000. (The premium
will be credited on your current account on the second business day from the
transaction.)
• The actual EUR/HUF rate is below 265.50 (e.g. 262.00). The option is not
exercised against you. If necessary you can sell the EUR 100,000 at the actual
exchange rate, i.e. 262.00. The HUF 3/EUR premium received earlier for the
4. 2. 8. 2.
Writing a call option

42
Call option
-15,00
-10,00
5,00
0,00
-5,00
Profit/loss
260,50 275,50
255,50
P/L
265,50 270,50
option may be seen as a kind of exchange rate-improving item, and so as a
result of the transaction you have achieved an exchange rate of 262.00 +3 =
265.00.
The actual EUR/HUF rate is above 265.50 (e.g. 269.00). The option is exercised
•
against you, i.e. you sell EUR 100,000 at a rate of 265.50 with a T+2 value
date. In this case the 3 HUF/EUR premium received earlier for the option may
be looked upon as an exchange rate-improving item, and so as a result of the
transaction you have achieved an exchange rate of 265.50+3.00 = 268.50,
which is still in line with the target rate of 265.50 contained in your plans.
Figure14
Advantages of a call option:
• Additional revenues may be earned through the premium if the market rates
are stable.
Disadvantages of a call option:
• Participation in any favourable exchange rate movement is possible
only up to the strike price.
• No protection against any unfavourable exchange rate movements.
• If you think a major weakening of the forint is likely.
• If you do not expect a significant strengthening of the forint, but you nonetheless
wish to participate in any favourable movement of the exchange rate.
• If the strike price of the protection level is in line with the exchange rate applied
in planning.
4. 2. 9.
Zero Cost Collar
- Exchange rate
ceiling and
exchange rate
floor-fixing
at no cost

43
Zero cost collar
-7,00
-2,00
3,00
Profit/loss
260,00 265,00
255,00 270,00
Product description
The collar is a complex option strategy which, in this case, consists of the
purchase of a call option and the sale of a put option at a higher strike price, and
therefore keeps the exchange rate between two specified levels, the ceiling
(cap) and the floor. The minimum transaction amount is EUR 100,000 or the
equivalent in another currency.
Example:
Let’sassumethataspartofyourvalidcontractsyouwillhaveEUR100,000revenues
in 3 months’ time. The current market rate is 260.00 EUR/HUF. You are concerned
that the forint will strengthen, and you do not expect any major HUF weakening.
Raiffeisen Bank’s Treasury recommends a zero cost collar strategy to you.
By purchasing a 3-month EUR put and HUF call option for EUR 100,000 at a
260.00 strike price, you gain the right to sell EUR at a 260.00 exchange rate in
three months’ time. Parallel with that, by selling a EUR call/HUF put option for
EUR 100,000 at a 265.50 strike price you assume an obligation to sell EUR at
a 265.50 exchange rate in 3 months’ time. The premium of the two options is the
same, and therefore this technique does not involve any cost.
• The EUR/HUF exchange rate is lower than 260.00 (e.g. 258.00). You exercise
your put option, and sell EUR 100,000 at a 260.00 exchange rate with a T+2
value date. The call option at 265.50 is not exercised against you.
• The EUR/HUF exchange rate is between 260.00 and 265.50 (e.g. 263.00); you
do not exercise your right to sell at 263.00 and the put option is not exercised
against you at 265.50 either. You may sell your currency at the actual market
rate, i.e. at 263.00.
• TheEUR/HUFexchangerateishigherthan265.50(e.g.267.00);youdonotexercise
your right to sell at 260.00, but the option is exercised against you at 265.50, and
thus you sell EUR 100,000 at a 265.50 exchange rate with a T+2 value date.
Figure 15

44
Advantages of a zero cost collar transaction:
• It allows you to partially profit from any favourable exchange rate
movements.
• It can limit a potential loss arising from any unfavourable movement.
• Cost-free strategy.
Disadvantage of a zero cost collar transaction:
• Limited participation in any favourable exchange rate movement.
• If you expect exchange rate fluctuations within a wider band.
• If you need to achieve a more favourable exchange rate than the current rate in
order to fulfil your plans.
• If you wish to hedge against exchange rates at no cost, but you would also like
to gain on any favourable exchange rate movement.
Product description
The seagull is a complex option strategy at no cost, which comprises
three options at different strike prices:
• sale of a put option with a low strike price: obligation to buy
• purchase of a put option at an average strike price: right to sell
• sale of a call option at a high strike price: obligation to sell.
The minimum transaction amount is EUR 100,000 or the equivalent in
another currency.
Example:
Let’s assume that you will have EUR 100,000 revenues in one year. The current
rate is 260.00, whereas you need an exchange rate of higher than 265.50 if
you are to achieve your plans. You are slightly concerned that there may be a
minor strengthening of the forint, yet you would also like to gain on any favourable
exchange rates resulting from a weaker forint.
Raiffeisen Bank’s Treasury recommends a 1-year seagull option strategy to you.
4. 2. 10.
Seagull

45
Seagull
-23,5
-3,5
16,5
6,5
-13,5
Profit/loss
250,0 260,00 270,00 280,00
240,0 290,00
The components of the strategy are as follows:
Put option at a 265.50 strike price. This represents a protection level, as at this
•
exchange rate you will be able to perform in accordance with your plans.
Obligation to sell at a 280.00 strike price: the task is to partially finance the
•
265.50 protection level, yet any favourable exchange rate levels arising from the
weakening of the forint may be used up to 280.00.
Obligation to buy at 250.00 strike price: the task is to partially finance the
•
265.50 protection level; the obligation becomes effective only in the event of a
major strengthening of the forint.
In 1 year’s time (at 12 a.m. on the maturity day) the following outcomes are
possible depending on the actual EUR/HUF rate:
The actual exchange rate is above 280.00: the option at a 280.00 strike price is
•
exercised against you, and thus you sell EUR 100,000 at a rate of 280.00 with
a T+3 value day, and the other two options are not exercised.
The actual exchange rate is between 265.50 and 280.00: none of the options is
•
exercised, and the transaction takes place at the market rate.
Between 250.00 and 265.50: you exercise your right to sell and sell EUR 100,000
•
at a 265.50 exchange rate on T+2 day. The other two options are not exercised.
Below 250.00: you exercise your right to sell, and thus you sell EUR 100,000 at
•
a 265.50 exchange rate on T+2 day, yet the put option at a 250.00 strike price
is exercised against you, and therefore, in parallel, you purchase EUR 100,000
at a 250.00 exchange rate on T+2 value day. Naturally, you do not have to
fulfil your obligation to sell at 280.00. Thus the net EUR position is zero, and
you may account (265.50-250.00)*100,000 = HUF 1,550,000 profit on the
two transactions, which compensates you for being forced to sell the required
currency amount at the actual market rate, below 250.00.
Figure 16

46
Advantages of the seagull:
Allows you to
• perform your plans at above the low strike price
(250.00).
Below the low strike price it compensates
• for any unfavourable exchange
rate movement.
It allows for limited
• participation in any favourable exchange rate
movement.
Cost-free
• strategy.
This is an exchange rate hedging instrument for managing risks, which may be
•
customised in accordance with expectations.
Disadvantage of the seagull:
Above the high strike price
• no gains can be achieved from the favourable
exchange rate level.
If you expect the current
• exchange rate to stabilise within 2-3 months.
•
rate and you are willing to limit your profit for that purpose.
If you have
• regular foreign-currency revenues.
Product description
The Target Profit Forward is a forward transaction structure with which a
maximum obtainable (‘target’) profit is associated. The transaction is for
12 forward conversions (e.g. the maturity dates are on the same business days
of each month after the transaction date). The transaction involves various forward
rates for each period. The conversion takes place at the forward rate applicable for
the period until the total achieved profit has reached the target profit. As
soon as this is achieved, the remaining transactions are cancelled!
Calculation of the achieved profit: transaction amount * (forward rate – European
Central Banking fixing). Upon each maturity, the outstanding target profit amount is
reduced by any profit achieved.
The minimum transaction amount is EUR 500,000 or an equivalent amount
in another currency.
4. 2. 11.
Target Profit
Forward

47
Example
Let’s assume that your business partners will pay you EUR 1 million a month over
the next 1 year. The market rate is 260.00 EUR/HUF. You expect the EUR/HUF rate
to fluctuate between 255.00 and 265.00 over the next 2-3 months, but your target
rate is higher than 268.00. You wish to conclude hedging transactions for the EUR
revenues.
Raiffeisen Bank’s Treasury recommends a Target Profit Forward transaction to
you. In contrast to the 262.70 classic forward average rate, you can fix a 273.00
forward rate for the next three months, then 266.00 for the subsequent three
months, and 263.00 for the last six months. The maximum target profit is HUF
30,000,000.
Let’s assume that on the first maturity date (at the end of the first month) the ECB
fixing rate is 258.00. Then you sell your EUR at a rate of 273.00 and the maximum
target profit reduces by (273.00-258.00)*1,000,000 = HUF 15,000,000. The
outstanding target profit is HUF 15,000,000.
On the second maturity date (at the end of the second month) the ECB fixing
is 263.00. Then you sell your EUR at 273.00 and the remaining target profit is
reduced by (273.00-253.00)*1,000,000 = HUF 10,000,000. The outstanding
target profit is HUF 5,000,000.
On the third maturity date (at the end of the third month) the ECB fixing is 260.00.
As the target profit would be (273.00-260.00)*1,000,000 = HUF 13,000,000,
yet the outstanding target profit is only HUF 5,000,000, and therefore you can
sell only part of your EUR (an amount corresponding to the HUF 5,000,000
outstanding profit) at 273.00. The outstanding transactions are cancelled!
If a loss occurs on one maturity, this does not change the outstanding target
profit amount.
Advantages of a Target Profit Forward:
The average of the exchange rates quoted for the Target Profit Forward i
• s more
favourable than the average of the classic-forward rates.
If the market rate does not change,
• the maximum target profit may be
achieved in some months, as a result of which the outstanding transactions
are cancelled. The transaction can then be concluded again with
favourable starting prices.
No-cost strategy:
• the exchange rate contains all expenses, and the customer
does not have any other costs to bear.

48
Disadvantages of a Target Profit Forward:
The transaction
• limits the obtainable profit amount in exchange for a more
favourable rate.
If
• the forint weakens suddenly and substantially, you will not be able to take
advantage of the more favourable exchange rates, because you will have to sell
currency at the rate fixed at the Target Profit Forward rate (similarly
to an ordinary forward transaction).
If the transaction remains live for the entire term, then the
• conversion rate of the
last maturities is less favourable than the ordinary forward exchange rates.
If you are concerned that there might be a strengthening of the forint, but you
•
haven’t ruled out the possibility of a stable weaker forint either.
To hedge against the exchange rate risks of smaller foreign-currency revenues
•
received in equal amounts during the year.
If the premium of the European-style option is higher than your budget allocated
•
for hedging.
Product description
The Bank pays out the difference between the average rate of the
reference exchange rate and the strike price of the option during the
term to the buyer of an average rate option, after maturity, if the strike price is lower,
in the case of a call option, or higher, in the case of a put option, than the average
rate of the reference exchange rate during the term. The minimum transaction
amount is EUR 500,000 or an equivalent amount in another currency.
Example:
Let’s assume that your revenues are earned in EUR and expenses are paid in
HUF. In the next one year you expect to earn EUR 500,000 revenues in an even
distribution. The actual market rate is 260.00 EUR/HUF.
You purchase a 1-year average-rate put option at a 260.00 EUR/HUF strike
price. The reference rate attached to the option is the official EUR/HUF rate fixed
by the European Central Bank (ECB). You pay HUF 3 premium/EUR for the option
at the time of the transaction.
During the year, you convert your revenues into HUF at the actual market rate.
4. 2. 12.
Asian-style
option (Average
rate option)

49
Average rate option
-5
-3
3
9
7
5
1
Profit/loss
Average of the reference axchange rate
255,00 270,00
250,00 285,00
P/L
260,00
In 1 year’s time the following outcomes are possible depending on the EUR/HUF
rates during the term:
The EUR/HUF currency pair is above 260.00 during most of the year, and thus
•
the average rate of the reference exchange rate is above 260.00. The option
does not generate a payment at the end, while during the year you enjoyed the
advantages of a weaker HUF.
The EUR/HUF currency pair fluctuated below 260.00 during most of the year,
•
and thus the average rate of the reference exchange is below 260.00. It may be
255.00. Although during the year you incurred an exchange rate loss because
of the strong HUF, in compensation you will receive an option payment of
260.00-255.00=5 HUF/EUR as a result of the purchased option.
Figure 17
Advantages of the average rate option:
Macro-hedging strategy,
• through which the FX risk of smaller foreign-
currency amounts received regularly throughout the year can be managed.
Compensates
• for any exchange rate loss incurred during the year.
As the average rate of the reference exchange rate is less volatile than the
•
volatility of the hedged currency pair, the option premium paid by you is
lower than in the case of a European-style option.
This is an exchange rate hedging instrument for managing risks, which may be
•
customised in accordance with expectations.
Disadvantages of the average rate option:
The average rate of the reference exchange rate may be different
•
from the average rate of the amounts converted by you during the year.
The option premium is a
• cost.

50
4. 2. 13.
Selection of an
exporter hedging
strategy depending
on exchange rate
expectations
Exchange rate expectation
Transaction
type
Substantial HUF
strengthening
Minor HUF
weakening
Stable market
Miner HUF
weakening
Substantial HUF
weakening
Volatile market
Forward
transaction
Flexible forward
Knock-out
forward
No touch
forward
Forward extra
Participating
forward
Purchase of a
put option
Writing a call
option
Zero cost
collar
Seagull
Target profit
forward
Purchase of an
average rate
option
Writing an
average rate
option

52
4. 3. 1. 1.
Firm order
4. 3.
Offers to importers
4. 3. 1.
Limit price
order
The conversion rate may be optimised from the point of the customer with a limit
(price) order, which the Bank accepts for at least EUR 100,000, or the equivalent
in another currency.
There are two basic types of limit orders: firm and call orders.
With a firm order the customer instructs the Bank to make a conversion at an
exchange rate defined by the customer, which is more favourable than the currently
effective market rate, provided that the exchange rate reaches the required
level within the effective term of the order. A firm order may be valid until a
specific time (e.g. 4 p.m. on 07. 12. 2011) or until withdrawal. Customers
are notified of the performance of the order by phone.
Example:
Let’s assume that HUF 30,000,000 revenues are credited to your account, and
you will need the EUR equivalent of this in no later than one week in order to make
payments to your suppliers. The current market rate is 260.00 EUR/HUF; however,
you would like to achieve a 258.00 exchange rate.
You give a firm order to the Bank to convert HUF 30,000,000 into EUR at a
258.00 exchange rate, provided that the exchange rate reaches 258.00 within
one week.
Let’s assume that in 3 days’ time the exchange rate reaches or falls below 258.00,
at which time the Bank notifies you by phone that the order has been performed: the
Bank has converted HUF 30,000,000 into HUF at the 258.00 exchange rate.
If the 258.00 exchange rate is not achieved on the market in 1 week by 4 p.m.,
the order automatically loses effect. Then you may convert your export revenue at
the current market rate.
Advantages of a firm order:
On the 24-hour market the conversion may also take place at the favourable
•
exchange rate, if the exchange rate reached the required level dealing hours.

53
4. 3. 1. 2.
Call order
4. 3. Offers to importers
A high
• exchange rate, valid for just a short period, can be achieved in
an extremely volatile market.
If the market moves in an unfavourable direction, you can
• minimise your loss
with a firm order. In this case the customer orders the Bank to make the conversion
if the exchange rate reaches a level that is lower than the currently effective
market rate.
The customer
• does not have to monitor the exchange rate, as the Bank
does this for him
No cost:
• this service is available free of charge.
Disadvantages of a firm order:
Commitment on the part of the customer:
• conversion takes place
automatically, when the specified exchange rate is achieved, therefore the
customer cannot change his former decision based on any new information.
Product description
With a call order the customer instructs the Bank to notify him whenever an
exchange rate specified by the customer has been reached.
Example
Based on the situation described above you give a call order to the Bank
instructing it to notify you if the 258.00 exchange rate is reached on the market.
Let’s assume that in 3 days’ time the exchange rate falls below 258.00, at which
time the Bank notifies you by phone that the 258.00 exchange rate has been
reached. If you find this exchange rate acceptable, you can purchase the EUR at a
258.00 exchange rate.
Advantages of a call order:
Customers
• can decide whether or not to implement the conversion at
a particular exchange rate based on new market information.
No cost:
• this service is available free of charge.
Disadvantages of a call order:
The customer can
• only attain exchange rate levels that are valid during
dealing hours – he cannot take advantage of the opportunities available on
the 24-hour currency market.

54
4. 3. 2.
Forward
In a rapidly changing market the
• exchange rate may suddenly move in
an unfavourable direction, and by the time the customer is contacted the
Bank may no longer be able to make the conversion at the specified rate.
•
If you do not expect any major weakening of the forint.
•
If you have a target exchange rate (e.g. the exchange rate used for financial
•
planning), for which the offered forward rate is acceptable.
•
Product description
A forward transaction is the simplest way to eliminate exchange rate risks, and
allows customers to fix the future exchange rate of a particular currency.
In a forward transaction the transaction amounts, the exchange rate and the maturity
are fixed at the time of the transaction, but financial settlement only takes place at
the maturity date (over T+2 days). The Bank enters into forward transactions for a
minimum EUR 50,000 or an equivalent amount in another currency.
The relationship between the forward rate and the actual spot (T+2 day) rate is
determined by the difference in the interest rates for the applicable term.
Example:
Let’s assume that you have to pay EUR 50,000 to your foreign partners in 3
months’ time. You are concerned that the forint may weaken, and you would like to
eliminate the exchange rate risk inherent in the transaction, and therefore you wish
to purchase EUR 50,000, which you will need to pay in the future, in the framework
of a forward transaction.
Treasury quotes a forward rate to you, as described below:
Forward rate = Actual spot rate + interest spread for the term
Forward rate = 260.00+3.25=263.25
Consequently, you purchase EUR 50,000 from the Bank at a rate of 263.25 for a
term of 3 months.

55
-15
-5
-10
0
Forward transaction
5
10
15
Profit/loss
260 270
250
4. 3. 3.
Flexi forward
In 3 months’ time the EUR 50,000 will be converted into HUF at this 263.25 rate,
fixed in advance, regardless of the market rate.
Figure 18
Advantages of a forward transaction:
Elimination of exchange rate risk,
• known conversion rates.
• concluded for any business day.
AbovethethresholdvalueofEUR50,000,ahedgingtransactionmaybeconcluded
•
for any amount, and rounding of the amounts is not a requirement.
The deal may be closed again with an equal and
• opposite transaction, under
the valid market terms and conditions.
No cost:
• the exchange rate contains all expenses, and the customer does not
have any other costs to bear.
Disadvantages of a forward transaction:
A forward transaction is an
• unconditional commitment on the part of both
yourselves and the Bank; regardless of the market rate at maturity, you must
purchase the currency at the agreed rate, and therefore you will not be able to
profit from any major strengthening of the forint (i.e. from an exchange rate fall).
As long as, for the given term, the forint interest rates are higher than the foreign-
•
currency interest rates, the forward rates are less unfavourable than the current
market rate, i.e. the interest difference is working against importers.
If the breakdown of your foreign-currency expenses cannot be precisely predicted
•
in terms of their timing.
If you expect a weakening of the forint.
•
If you do not expect any major strengthening of the forint.
•

56
•
acceptable.
•
Product description:
A flexi forward is a forward transaction where the maturity is not a single point
of time in the future, but a predefined term (maximum 1 month) during which the
exchange rate quoted by Treasury will be effective. Financial settlement takes place
either during the period (through an ‘early termination’ of the transaction) following
the customer’s request, or automatically, on the last day of the period.
Example:
Let’s assume that, depending on when your business partners pay, you expect
EUR 40,000,000 revenues on your account in 2 months’ time at the earliest, but no
later than in 3 months’ time, from which you will have to pay your foreign suppliers
in an amount of EUR 150,000 as soon as possible. You are concerned that there
may be a weakening of the forint and would like to offset the exchange risk inherent
in the transaction. At the same time, you intend to convert you revenues into HUF on
the same day that they are credited. Raiffeisen Bank’s Treasury recommends a flexi
forward to you.
The exchange rate quoted by Treasury for a period of from 2 months to 3 months
is as described below:
Flexi forward exchange rate = Actual spot rate + swap points for the term
Flexi forward exchange rate=260.00+3.25=263.25
Consequently, you purchase EUR 150,000 from the Bank in a flexi forward
transaction at a 263.25 exchange rate for a term of from 2 months to 3 months.
After 2 months, HUF 15,000,000 arrives from your foreign partners and is
credited to your current account. You notify Treasury by phone that you wish to
purchase EUR 50,000 at the agreed 263.25 exchange rate, charged to your
fixed flexi forward transaction. Treasury performs the conversion following the
notification.
Two months and 1 week later, a further HUF 20,000,000 arrives to your account,
of which EUR 70,000 is converted as described above.
On maturity, i.e. 3 months after the conclusion of the transaction, the Bank
automatically converts the remaining EUR 30,000 (150,000-50,000-70,000) at
the agreed 263.25 exchange rate.

57
4. 3. 4.
Knock-out
forward
Advantages of a flexi forward transaction:
The exchange rate risk of a foreign-currency expense against forint
• revenue,
the date of receipt of which cannot be accurately planned for, may also
be hedged.
The
• term may be determined in accordance with your requirements, starting
from a 2-day flexi forward to longer, maximum 1-month, flexi forward transactions.
A flexi forward also makes what is known as a
• partial maturity possible;
in other words if part of the fixed amount is available at the beginning of the
term, that partial amount may be converted, while the remaining amount will be
converted later. The minimum amount of a partial maturity is EUR 50,000.
Multiple partial maturities
• are also possible.
You do not expect any extreme strengthening or weakening of the forint.
•
•
rates, and are willing to assume an additional risk for this.
•
acceptable.
Alongside ordinary forward transactions, in order to improve the average
•
exchange rate.
Product description
A knock-out forward is a forward transaction that includes an exchange rate level
(knock out/KO level) which, if it is reached by the interbank market quotations
at any time during the term, will automatically result in termination of the
transaction. The amount of the transaction may be a minimum EUR 200,000
or the equivalent in another currency.
Example:
Let’s assume that you will have to pay EUR 200,000 to your business partner in
one year’s time. The market exchange rate is 260.00 EUR/HUF. You are concerned
that there may be a slight weakening of the forint, and so you would like to enter
into a hedging transaction for this EUR 200,000 future expense, and at the same
time you do not expect any major strengthening of the forint in the next year.
Raiffeisen Bank’s Treasury offers you a KO forward transaction. Compared to the
271.97 classic-forward rate, you can fix a 263.70 forward rate for 1 year, with
the condition that during the term the interbank market quotations do not reach a
290.00 EUR/HUF exchange rate.

58
-5,00
KO forward
5,00
Profit/loss
245,00 255,00
240,00 250,00
4. 3. 5.
No Touch
forward
working day before the maturity date, the
EUR/HUF quotations on the interbank market did not reach the 290.00 KO rate. In
this case, you purchase EUR 200,000 against HUF at a 263.70 exchange rate in
1 year’s time regardless of the exchange rate on that day.
Let’s assume that 3 months after the transactions, the interbank market quotations
reach the 290.00 exchange rate. The Bank notifies you that the KO forward
transaction has been terminated; you can wait for a more favourable exchange rate
(a stronger HUF) or may decide to enter into a new forward hedging transaction.
Figure 19
Advantages of a knock-out forward transaction:
The knock-out forward rate is always
• more favourable than the classic-
forward rate.
No cost:
• the exchange rate contains all expenses, and the customer has no
other costs.
Disadvantage in a knock-out forward transaction:
In exchange for a more favourable rate, the transaction involves a
• higher risk
because the coverage may be lost if unfavourable developments occur on the
market (i.e. a major weakening of the forint).
•
•
rates, for which you are willing to assume additional risk
No major strengthening of the forint is expected, but you wish to cover your
•
exposure in case it still happens.
•

NT forward
-20
0
10
20
-10
Profit/loss
265 270 280
260
P/L NT1 Exchange rate
P/L NT2 Exchange rate
275
59
Product description
A no touch forward (NT forward) transaction is a forward transaction, which offers
a more favourable exchange rate (primary exchange rate) ten the
classic-forward rate under the conditions that during the term the interbank market
quotations do not reach a predefined exchange rate (touch level/no touch level). If at
any time during the term the interbank market quotations reach the no touch level,
then the forward rate will be modified to a predefined secondary exchange rate
level, which is less favourable than the classic-forward rate. The minimum transaction
amount is EUR 200,000 or an equivalent amount in another currency.
Example:
Let’s assume that you have to pay EUR 200,000 to your business partners in one
year’s time. The market exchange rate is 260.00 EUR/HUF. You are concerned of
some weakening of the forint therefore you wish to conclude a hedging transaction
for the EUR 200,000 future expense, yet wish to have a more favourable exchange
rate than the classic-forward rate.
Raiffeisen Bank’s Treasury recommends an NT forward transaction to you.
Compared to the 271.97 classic-forward rate, you can fix a 265.00 primary rate
for one year, with the condition that during the term the interbank market quotations
do not reach the 280.00 EUR/HUF exchange rate. If this exchange rate is touched,
the forward rate will be modified to 275.00.
business day before maturity the EUR/
HUF quotations on the interbank market have not touched the 280.00 KO level.
In this case you purchase EUR 200,000 for HUF at a 265.00 exchange rate in 1
year’s time, regardless of the exchange rate on that day.
Let’s assume that 3 months after the transaction, the interbank market quotations
touch the 280.00 exchange rate. The Bank notifies you that the secondary exchange
rate has become effective: the exchange rate of the NT forward transaction has
been modified to 275.00. You purchase EUR 200,000 for HUF at a 275.00
exchange rate in 1 year’s time regardless of the exchange rate valid on that day.
Figure 20

60
4. 3. 6.
Forward Extra
Advantages of a no touch forward transaction:
A more favourable exchange rate
• can be achieved than the classic-
forward rate.
No cost: the exchange rate contains all expenses, and the customer
•
has no other costs to bear.
As long as the forint interest rates are higher than the foreign-currency interest
•
rates for the particular term, the transaction can be closed with a profit when the
no touch level is reached.
Coverage
• is not terminated even if unfavourable processes occur on the market.
Disadvantage of a no touch forward transaction:
In exchange for a more favourable rate, this transaction involves a
• higher risk,
because if negative processes occur on the market (e.g. a major weakening of the
forint) the transaction changes into a transaction concluded at a less favourable
exchange rate.
If you expect a weakening of the forint.
•
If no major strengthening of the forint is expected.
•
•
Product description
A forward extra transaction is a complex transaction which provides a call option
to the customer at a specified strike price for a specific future time, as long as the
interbank quotations do not reach a predefined knock-in (KI) level, in which
case the transaction changes into a forward transaction (commitment).
Example:
Let’s assume that you will have a EUR 100,000 expense in 1 month’s time. The
actual exchange rate is 260.00 EUR/HUF. You expect some weakening in the
forint and would like to hedge against any exchange rate risk resulting from this, but
at the same time you would also like to profit from any favourable exchange rate
level related to a stronger forint. Raiffeisen Bank’s Treasury offers a forward extra
transaction to you.
Within the framework of a 1-month forward extra transaction you purchase EUR
100,000 at a 267.00 exchange rate, with a KI level of 255.00 EUR/HUF.
In 1 month’s time (at 12 a.m.) the following outcomes are possible, depending on
the development of the EUR/HUF exchange rate during the term:

61
Forward Extra
-12
-2
8
3
-7
Profit/loss
260 265 275
255 270
Határidôs ügylet
Eladási jog
4. 3. 7.
Participating
forward
• The HUF remained weak during the term and the interbank quotations did not
reach the 255.00 exchange rate level: Forward extra = Call option.
• If at maturity the actual exchange rate is above 267.00, you exercise your
right to a put option and purchase EUR 100,000 at a 267.00 exchange
rate on T+2 day
• If the market rate is below 267.00 you do not exercise your call option and
the transaction is concluded at the market rate (between 255 and 267).
• If the forint strengthened during the term and the interbank quotations have
reached the 255.00 exchange rate, then the transaction changes into a forward
transaction at a 267.00 rate, i.e. upon maturity you purchase EUR 100,000 EUR
at a 267.00 exchange rate regardless of the actual market rate.
21. ábra
Advantages of a forward extra transaction:
It protects
• against any negative exchange rate movements.
Cost-free
• strategy.
It is an exchange rate hedging instrument for managing risks, which may be
•
customised based on expectations and exchange rate risks.
Disadvantage of a forward extra transaction:
If the KI level is reached, it is not possible to take advantage of the favourable
•
exchange rate.
On an uncertain market, where extreme exchange rate movements are possible.
•
•

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