Forward-Forward Deposit

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A forward-forward Deposit , just forward-forward , also deposit or deposit futures contract is a form of off-exchange rate agreement ( interest rate derivatives ). It is an unconditional forward transaction ( forward ) on a time deposit in which it is agreed today that a business partner will make a time deposit with the other business partner at a specified time in the future. The duration of the investment, the amount of the investment (nominal) and the interest to be paid to the depositor are determined when the transaction is concluded. An example: Contracting parties A and B agree that A will invest a sum of EUR 10 million in B in 3 months for a period of 6 months. The total duration of the transaction is 9 months. The agreed interest rate is 2.4%. Since the interest rate relates to an investment in the future, this is a forward rate . After 3 months, A provides B with EUR 10 million. After a further 6 months, B pays back the EUR 10 million plus EUR 120,000 agreed interest (2.4% on EUR 10 million for half a year) to A.

The mode of action of a forward-forward deposit corresponds to that of a forward rate agreement , in which an agreement is made on an interest rate for a future investment period. Accordingly, both transactions have the same interest rate risk . The difference is that with a forward-forward deposit, a financial investment is actually made, while with the forward rate agreement, only a compensation payment is made with regard to the interest. For this reason, the forward-forward deposit has a significantly higher counterparty default risk for the investor .

Forward-Forward-Deposits and Forward Rate Agreements are money market derivatives and are usually negotiated between professional market participants, e.g. B. Banks, traded. The analogous business for a long investment period is called forward loan and it is a product that banks provide for their customers.

Individual evidence

  1. ^ Hans E. Büschgen : The small bank lexicon. 3rd, updated and expanded edition, Verlag Wirtschaft und Finanz im Schäffer-Poeschel Verlag, Stuttgart 206 year, ISBN 978-3-87881-180-0 , p. 380, keywords “Forwardforward” and “Forwardforward Deposits”.