Foreign Exchange (FX) Products
A. FX Spot - involves the conversion of one currency to the other at rates provided on a particular trading day. Settlement of these transactions is two working days. There is no security required for this type of transaction. They are usually termed Delivery Versus Payment (DVP) transactions. No security is required for FX Spot transactions.
Fixed Term Deposits
This is an investment opportunity offered to Corporates and individuals. It involves placing your money with the treasury department for a fixed period of time at an agreed interest rate. The interest rate is annualised. The tenor is entirely at the discretion of the investor. Tenors usually range from 30days to one year. The advantage of a fixed deposit is that adverse interest rate movements do not affect the agreed return at deal date. However, the reverse is true if interest rates move upwards.
Important Points to note:
- Deposit has to be maintained for the duration of the fixed deposit.
- Investment funds can be used as collateral security on overdrafts/ loans
- Principal is protected and after the funds mature they can be reinvested.
- Interest/Maturity proceeds are transferred to the account where the funds came from.
- Any early redemption of the fixed deposit attracts a charge
- Fixed deposits have a higher return on investment than transactional accounts.
- Investors may not necessarily be NMB Bank account holders.
- Treasury operates an investment account which has no charge tied to it and is solemnly for investment purposes. No third party transfers can be initiated out of the investment account.
Banker’s Acceptances (BA'S)
Banker's acceptance is a promised future payment, which is accepted and guaranteed by a bank.
- The date of maturity typically ranges between 30 and 180 days from the date of issue.
- Tradable on the secondary market before the acceptances reach maturity.
- The treasury department uses BAs as security in mobilising deposits on the money market.
A Promissory Note is a written, dated and signed two-party instrument containing an unconditional promise by the maker (customer in this case) to pay a definite sum of money to a payee at a specified future date. This is one of several instruments which the Bank uses for lending to customers.
A customer approaches Corporate Banking for a borrowing and if the customer is in possession of a promissory note, the Corporate Banking Manager opts to discount the Promissory Note, the terms of the borrowing are agreed, days left to run, discount rate, payment date, etc. The discount rate is obtained from Treasury Front Office.
Treasury Bills (TBs) and Bonds
Investments can be made in these gilt edged securities issued by the Central Bank and guaranteed by the Government (Treasury Bills or Treasury Bonds) and Institutions (Corporate Bonds).
Features of these products are as follows:
- Liquid Asset Status
- Prescribed asset status
- Tradable in the secondary market.
- Interest rates are market related and investors are guaranteed security on their savings.
NB: The Bank purchases Treasury Bills as a store of value by increasing the Bank’s portfolio of these assets. TB’s act as a form of security for any borrowing the Bank might undertake. They act as a store of liquidity and assist in taking advantage of the high interest but short term, minimal risk investments.