Participating forward releasable

A participating forward releasable allows you to secure a protection rate (slightly less favourable than the benchmark forward rate) while allowing you to take full advantage (no floor) of a favourable move in the spot rate at expiry, in the limit of the participation rate. However, this scenario is possible only if the high barrier is touched during the lifetime of the contract.This is known as an American barrier.

Complexity level :

:

Catégorie : 2 *

Guarenteed protection rate :

Protection rate level against benchmark forward rate :
Slightly less favourable

Amount dealt at expiry :
Same as the notional amount

In what market to use it ?

Participation in a favorable move in spot :

Hypothesis A : If during the lifetime of the contract, the high barrier has not been touched:

 

Scenario A1

At expiry, if the spot rate is less favourable than the protection rate, you can sell the notional amount at protection rate.

 

Scenario A2

At expiry, if the spot rate is better than the protection rate, you must sell the notional amount at protection rate.

 

Hypothesis B : If during the lifetime of the contract, the high barrier has been touched:

 

Scenario B1

At expiry, if the spot rate is less favourable than the protection rate, you can sell the notional amount at protection rate.

 

Scenario B2

At expiry, if the spot rate is better than the protection rate, you must sell 50% of the notional amount at protection rate and you can sell 50% of the notional amount at spot rate.

Currency cross	EUR / USD
Side	Sell USD
Contract maturity	6 months
Benchmark forward rate	1,109
Protection rate level	1,1180
Improved rate level	N/A
Readjusted rate level	N/A
Low barrier level	N/A
High barrier level	1,1300
Participation rate	50%
Ratio	1 : 0,5
Reserve of points	N/A
Type of contract	American
Frequency of fixings	N/A
Frequency of deliveries	N/A
Fixing	10 am, New-York time

Advantages

Disadvantages