“PROMOTED. Thanks to their wide application, “swaps” help businesses adapt to a dynamic financial environment”, — write: www.epravda.com.ua
From the beginning of the full-scale invasion of the Russian Federation until October 2023, a fixed exchange rate regime operated in Ukraine. It was introduced to stabilize the country’s financial system. From October 2023, the National Bank of Ukraine introduced a regime of managed exchange rate flexibility.
In conditions of a floating exchange rate, business feels the need for planning, for example, during import purchases or formation of prices for its goods or services.
How to be under such circumstances? How not to receive losses due to the fact that the course dynamics do not coincide with the business plan?
The main factor in the emergence of currency risks is short-term and long-term exchange rate fluctuations, which depend on the demand and supply of currency on the national and international currency markets.
Leveling risks is a common practice of any participant in the developed market. Thanks to currency liberalization, tools for minimizing currency risks are also available in our market. These are, in particular, agreements with banks on the terms of SWAP (“swap”).
Such an agreement offers businesses and investors effective financial risk management mechanisms.
Currency transactions on “swap” terms
Currency “swap” is a currency transaction, the terms of which provide for the sale of foreign currency by customers with the return of its purchase on a certain date in the future, with the fixation of the terms of these transactions (exchange rates, volumes, exchange dates, etc.) at the time of concluding the contract. It can also be considered as an analogue of obtaining a loan in hryvnia against property rights on a deposit in foreign currency.
Advantages of currency transaction on “swap” terms:
- a modern currency risk hedging tool;
- the possibility not to sell foreign currency to finance current activities;
- the return purchase of foreign currency by the client does not require approval by the currency control;
- standard sales commission as for FX operations and no buyback commission;
- the term of the operation is set in the exact number of days according to the client’s needs;
- the possibility of early execution/prolongation;
- minimum requirements for the client during the execution of the transaction.
What are the limitations? Due to the military aggression against Ukraine in February 2022, the National Bank limited currency operations and settlements with non-residents for the period of martial law. They refer, in particular, to currency purchase and sale operations.
Thus, according to the resolution of the NBU Board dated February 20, 2024 # 24, currency transactions on the terms of “swap” for the purchase and sale of foreign currency are available to enterprises, if the first part of the transaction involves the purchase of foreign currency by the bank from the client.
New experience in structuring a currency transaction
Today, the state-owned Ukreximbank performs forward and “swap” currency transactions in USD/UAH, EUR/UAH and other pairs at the client’s request.
Clients of Ukreximbank can use such derivatives to protect themselves from currency exchange rate fluctuations and quickly receive financing, while not creating an additional debt burden.
In 2022, the Bank carried out 200 transactions for 600 million US dollars, in 2023 – 50 transactions for 200 million US dollars. In 10 months of 2024, the Bank concluded 15 swap agreements for USD 25 million.
The service is in demand among the Bank’s clients throughout Ukraine. Thus, recently the branch of Ukreximbank in the city of Poltava conducted a currency transaction on the terms of “swap” with a corporate client – one of the largest milk processors, which occupies a leading position in the Ukrainian market for the production of sour milk cheeses, sweet butter and milk powder.
On the terms of “swap”, the client sold foreign currency to the Bank for a total amount of more than the equivalent of 15 million US dollars, with its reverse purchase after 30, 60 and 90 days with pre-fixed terms of operations (exchange rates, volumes, exchange dates).
“For our branch, this is a new experience in structuring a foreign exchange transaction. Thanks to the coordinated work of the Bank’s team, an ambitious case was implemented using a modern, sought-after money market tool for the client. This allowed the Bank’s branch not only to maintain a portfolio of liabilities, but also to receive additional income,” she commented managing branch of Ukreximbank in Poltava, Bozhena Kudryashova.
In conclusion, we can say that today SWAP remains one of the most effective money market tools, giving clients the opportunity to manage risks, reduce costs and increase stability in difficult market conditions.
Thanks to their flexibility and wide application, swaps help businesses adapt to a dynamic financial environment. All this makes them an integral part of modern financial management tools.