Over-the-Counter Derivatives

Forward contracts are derivative products used to manage the risk of future price/exchange rate fluctuations.

For example, if an importer wants to fix the TL cost of goods to be paid for three months later against the risk of the Turkish Lira depreciating, they can enter into a three-month forward foreign exchange purchase contract with our bank. Forward contracts provide protection against price/exchange rate risks but cannot be canceled before maturity, and the transaction is executed at the agreed price/exchange rate on the contract date, regardless of the market price/exchange rate at maturity.

Options are derivative products used to manage the risk of future price/exchange rate fluctuations. An option is a contract that grants the holder the right to buy or sell a specified amount of the underlying asset (such as currency, precious metals, commodities, etc.) at a predetermined price within a specific period or on a specific date. In forward contracts, both the buyer and seller are obligated to execute the transaction, while in option contracts, the option buyer has the right, and the option seller has the obligation to execute the transaction if the option buyer decides to exercise the right. The option buyer pays a premium to the option seller for this right, considering factors such as the underlying asset, maturity, and strike price.

Currency swaps are derivative products used for cash flow management. Generally, transactions are executed for maturities of up to one year. A currency swap transaction involves simultaneously executing a spot and a forward contract. A specified amount of one currency is converted into another at the spot exchange rate on the value date and then converted back to the original currency at the forward exchange rate on the maturity date.

For example, a company with foreign currency liquidity but a TL payment obligation can use a currency swap to convert the foreign currency liquidity into TL for a specific period to meet its payment obligation without taking on exchange rate risk.

Interest rate swaps allow clients to manage interest rate risk by converting a fixed-rate debt or asset to a variable rate or vice versa. In interest rate swap transactions, no principal exchange occurs; only net interest payments are exchanged based on the nominal amount specified in the contract.

For example, a company expecting interest rates to decline in the next two years may enter into an interest rate swap to convert the interest payments on a fixed-rate loan to variable-rate payments, managing the interest risk associated with the loan.

Cross-currency swaps are derivative products used for both cash flow and risk management by exchanging different currencies and different interest structures (fixed or variable) between parties. These transactions typically have maturities longer than one year.