Foreign Exchange

About us

Businesses that trade internationally are likely to be exposed to foreign exchange risk arising from volatility in the currency markets. If not managed effectively, the impact that exchange rate fluctuations can have on business profitability can be significant.

Our team of foreign exchange specialists will work with you to develop an appropriate foreign exchange risk management strategy that effectively meets the requirements of your business, using instruments such as spot cover, forward exchange contracts (FECs) and derivative instruments.  

We provide the following key services: 

• Spot cover – foreign exchange transactions in which one currency is bought or sold against payment in another currency at a specified
  rate with settlement taking place two business days later. The two-day
  settlement process, commonly referred to as spot, is international practice due to differences in time zones and the time required by banks to ensure that settlement is done correctly. 
• Same-day and next-day value deals – when urgent currency payments
  or receipts must be processed, one-day value or even same-day value exchange rates may be provided, depending on currency cutoff times.
• FECs – these contracts are used to hedge
  exposures to exchange rate fluctuations

FECs are contractual agreements between the bank and its clients to exchange a
specified amount of one foreign currency for another at a predetermined
exchange rate on a specified future date. There are various types of FECs that
can be used depending on your requirements:

•  A fixed FEC can be used only on the specified maturity date.
• A partly optional FEC can be used within a prespecified period between two future dates.
• A fully optional FEC can be used at any time between the date of establishing the FEC and the specified maturity date. 

Swaps are the simultaneous purchase and sale of identical amounts of one foreign currency for another, but on two different value dates, either spot against a forward date or one forward date against another forward date.

• Early delivery (or pretakeup) swaps are used to bring forward the
  maturity date of an existing FEC. Extension (or rollover) swaps are used to extend the maturity date of an existing FEC to a later date.

Long-dated forwards

Long-dated forwards are FECs with a maturity date longer of than 12 months forward, subject to prior approval of the Central Bank of Lesotho (CBL).

Currency derivatives

Currency derivatives can also be used to hedge exposure to exchange rate fluctuations, but are fundamentally different from FECs. Whereas the parties to a FEC are 'lockedin' to a future transaction in a forward contract, the buyer of an option contract has the right, but not the obligation, to buy or sell a fixed amount of currency at a fixed exchange rate on a predetermined date in the future. The
buyer can therefore choose the better exchange rate – either the prevailing
rate in the market at the time, or the price specified in the option contract.
There are two main types of option contracts, namely call options and put options, and these can be used in various combinations to provide structured solutions to meet your hedging requirements. While currency derivatives provide greater flexibility as a hedging instrument, they also have a cost in the form of a
premium that is payable at the time of purchasing the option contract.

With a call option the buyer has the right, but not the obligation, to buy the underlying currency at a fixed exchange rate on a predetermined future date.

With a put option the buyer has the right, but not the obligation, to sell the underlying currency at a fixed exchange rate on a predetermined future date. 

Currency futures

(CFs) are contracts that give the buyer the right to buy or sell an underlying currency at a fixed exchange rate at a specified date in the future. One party to the agreement agrees to buy the CF contract at a specified exchange rate and the other agrees to sell it at the expiry date. The underlying instrument of a CF contract is the exchange rate between one unit of foreign currency and the South African rand. Contracts are cash-settled in rand and no physical delivery of the foreign currency takes place. CF contracts are traded on the JSE and have margin requirements that the client must provide. 

Currency orders, stop-loss orders and call-levels

We provide 24-hour monitoring and execution of currency orders,
stop-loss orders or call levels on behalf of clients.

Financial markets information and advice

We provide pertinent data and astute perspectives on the foreign exchange markets to our clients.