WORKING CAPITAL FINANCING WITH COLLATERAL

Interest Rate Floor

Protect yourself from adverse
interest rate declines

The interest rate floor is a derivative financial instrument – an interest rate option or a series of interest rate options protecting their buyer against a fall in a certain reference interest rate index. The buyer of the option receives payment from the seller in cases where the reference interest rate is lower than a predetermined level of protection (execution price). The buyer of the interest rate floor pays in advance a premium for the instrument. The amount of payments for each period is determined by the difference between the value of the reference interest rate and the level of protection, taking into account the length of the period, the face value of the agreed principal and the interest rate convention. In combination with an asset, the payments on which depend on a floating interest rate index, the interest rate can provide predictability of cash flows on exposure.

The reference interest rate index can be: Euribor – for transactions in EUR, Libor in USD – for transactions in USD, Libor in CHF – for transactions in CHF.

The frequency of payments depends on the maturity of the reference interest rate. For example, for one-month Euribor or one-month Libor, the frequency is one-month, and for three-month Euribor and three-month Libor, the frequency is three-month.



010

Term of interest rate transactions: 

Usually, interest rate transactions are concluded for a period of up to 10 years.

008

Currency: 

The currency of the proposed interest rate floor can be EUR, USD or CHF.

040

Objectives: 

The interest rate floor is used to hedge interest rate risk.



Target market of the product

The Interest Rate Floor is a financial instrument, which the Bank manufactures and distributes as a product. The table below sets out the criteria for determining for which client profile the product is compatible with or not.

 

Positive

Negative

Type of clients

each client with a credit a credit exposure of at least 3 years

 

Clients’ knowledge and experience относно

- the movement and the possible expectations regarding the hedged reference values;

- lost profits or realised losses related to a negative change in reference values for the client when in Interest Rate Collar transaction and Reverse Interest Rate Collar transaction;

- hedging the cash flows by buying Interest Rate Cap, Interest Rate Floor or Interest Rate Collar transaction and Reverse Interest Rate Collar, combined with Interest Rate Swap related to the interest payments of the client on a credit exposure;

- maintenance of collateral required when concluding an Interest Rate Collar transaction;

- cost management and limited protection in the cap spread rate and the floor spread rate strategies

does not meet the indicated knowledge and experience requirements

Clients’ financial situation with a focus on the ability to bear losses

- to suffer a negative result on periodic netting payments on Interest Rate Collar transaction within the term of the instrument;

- the existence of a credit exposure hedged with an Interest Rate Cap, Interest Rate Floor or Interest Rate Collar and Reverse Interest Rate Collar, combined with Interest Rate Swap;

- ability to pay a premium in advance for the option or the option strategy

 

Clients’ risk tolerance and compatibility of the risk

if the objective is hedging, the client’s risk appetite will not be considered

inclined to bear the risks of negative deviations of the reference values in the presence of a long-term loan or if they do not have a credit exposure

Clients’ objectives and needs

to hedge an exposure

 

Documents

Get in touch

Call center Call center

Customer Support

We will get in touch with you

010 010

Book an appointment

for a consultation

012 012

Find a location

Explore our network of branches and ATMs