Interest Rate Risk Management

TCV is able to provide the following interest rate risk management products, all at competitive market rates, enabling our clients to minimise exposure to unfavourable interest rate changes.

Forward Rate Agreement

A Forward Rate Agreement (FRA) is an agreement between TCV and a client looking for protection against a future interest-rate movement for a specified period at an agreed rate. A FRA applies a fixed interest rate to a notional amount for a specified period. They can be tailored to precisely match a client's short-term hedging needs.

Interest Rate Swaps

An interest rate swap is an agreement between TCV and a client to exchange interest rate cash flows based on a notional principal amount over an agreed period of time. Interest rate swaps often exchange a fixed interest payment for a floating payment that is linked to the bank bill swap reference rate (BBSW). They can be tailored regarding the start and end dates, payment frequency and cash flow profile.

Interest Rate Options

Interest rate options are tailored to the needs of each client, with bill options available to hedge short-term interest rate exposures and bond options used to hedge long-term interest rate exposures. Options provide protection against interest rate movements and are effectively an insurance policy for which a premium is paid.

Bank Bill and Bond Futures Contracts

For clients wanting to hedge short, medium and long term interest rate exposures, TCV can provide access to 90 day Bank Bill, and 3 and 10 year Treasury Bond futures contracts traded on the Australian Securities Exchange (ASX). The utilisation of these instruments will require the approval of the Treasurer or a Ministerial direction.

Foreign Exchange Risk Management

TCV offers the following foreign exchange risk management products for clients with foreign exchange risk exposures. These exposures may occur, for example, due to foreign exchange receivables or payables.

Spot Foreign Exchange Rate Contracts

Spot foreign exchange rate contracts provide for the immediate exchange of foreign currency cash flows into an alternative currency. A spot foreign exchange rate transaction will involve either the purchase or sale of foreign exchange at a rate that is agreed today for physical delivery in two business days.

Forward Foreign Exchange Rate Contracts

Forward foreign exchange rate contracts provide for the exchange of foreign currency cash flows into an alternative currency on a future settlement date (beyond two business days). Forward foreign exchange rate contracts reduce uncertainty about the value of future cash flows.

Foreign Currency Term Deposits

Foreign currency term deposits are for clients who have used a forward foreign exchange rate contract as part of their foreign exchange hedging strategy, then found a mismatch has occurred with either the timing or volume of the foreign currency that has been agreed to in the forward contract. A foreign currency term deposit would only be entered into if there is an ongoing and known requirement for the foreign currency at a future date.

Foreign Exchange Options

Foreign exchange options are an alternative means of managing foreign exchange exposures. Call options give purchasers the right to buy currency at a fixed price in the future, while put options give the purchaser the right to sell currency. Foreign exchange options can be regarded as a type of insurance against future currency movements and may be purchased by paying a premium.