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A loan currency switch offers leverage clients the possibility to book cross currency loans and to convert their loan currency.
Citibank N.A., UAE offers major currencies for the term loan (such as USD, EUR, GBP, CHF, JPY, AUD, CAD). Depending on your investment objectives or hedging strategy, you may convert the current loan currency to another currency after a discussion with your Relationship Manager or Treasury Specialist.
Hypothetical example:
Assuming you have a loan of USD 100,000 at an interest of 2% per annum, with the expectation of JPY depreciating against USD, you may convert your USD loan to JPY for the lower interest rate of 1% per annum, at the prevailing foreign exchange (FX) rate.
Please click here(opens in a new tab) to see the Secured Facility Lending Rates for available loan currencies.
The table below illustrates the performance of the loan after the currency conversion.
Loan Switch Trade | To convert loan of USD 100,000 to JPY 10,500,000 at USD/JPY = 105 (client rate) (USD 100,000 X 105 = JPY 10,500,000) | ||
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Loan principal + interest after 1 month |
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Client FX Rate (Inclusive of bank spread) after 1 month | Scenario 1: JPY appreciates against USD by 2% to USD/JPY 102.90 | Scenario 2: JPY is unchanged against USD at USD/JPY 105 | Scenario 3: JPY depreciates against USD by 2% to USD/JPY 107.1 |
USD Loan Amount if JPY Loan is converted back to USD Loan after 1 month | USD 102,125.85 (JPY 10,508,750/102.90) | USD 100,083.33 (JPY 10,508,750/105) | USD 98,120.92 (JPY 10,508,750/107.10) |
Total Gain/Loss | Total Loss = USD 1,959.18 (USD 100,166.67 minus USD 102,125.85) | Total Gain = USD 83.34 (USD 100,166.67 minus USD 100,083.33) | Total Gain = USD 2,045.75 (USD 100,166.67 minus 98,120.92) |
The rates quoted in the illustration above are (a) assumed to included bank spread; and (b) not indicative of past or future interest rates or spot FX rates.
Please note the following points when doing loan currency conversions:
The below table illustrates the Order watch actions for a loan swap instruction placed on 1st April 2022 at a target client rate of USD/JPY = 105 for a period of calendar 30 days on an USD loan:
USD/JPY rate movement | Rate doesn’t reach USD/JPY = 105 in the next 30 days | Rate reaches USD/JPY =105 on 20th April | Rate reaches USD/JPY = 105 on 2nd May (post order expiry time) |
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Impact on Loan | No Impact, Loan is not converted | Loan is converted from USD to JPY | No impact, Loan is not converted as order has expired |
Foreign Exchange and Interest rate risks
Click here(opens in a new tab) to view the loan currency switch fact sheet.
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