OREANDA-NEWS. April 22, 2011. ICBC Beijing Branch had struck 2 deals of the RMB against foreign currency options with two foreign trade companies, with the notional principal amount at USD 1.3 million. RMB foreign-exchange trade option is a new banking service subsequent to the forward exchange settlement and RMB-foreign exchange swap, for domestic companies to hedge against the exchange rate risk, reported the press-centre of ICBC.

When compared to the conventional forward exchange settlements, RMB-foreign currency option trading is not simply a product upgrade, but offers more choices for the companies. Through option trading, a company acquires the right upon payment of a certain fee to the bank to buy from or sell to the bank a specific amount of a currency at a pre-agreed exchange rate on a specified date. Upon maturity of the option, if the strike price of the option is higher than the spot exchange rate on the maturity date, the company will exercise the option to buy or sell the foreign currency at the strike price. If the strike price of the option is below the spot exchange rate at expiry, the company will simply let the option lapse and execute the buy/sell contract in the spot market. To companies, options are more flexible, always having the option to buy/sell foreign currency at a better rate.

Since June 2010, the yuan exchange rate has become increasingly flexible against the financial crisis period. The demands from firms to hedge foreign exchange risks are rising. In February this year, State Administration of Foreign Exchange announced the Circular of the Administration of Foreign Exchange on Certain Issues Concerning Option Trading of RMB against Foreign Currency, which plays an important role to nurture the RMB-foreign exchange market, product innovation and give companies more choices to use forward contracts to hedge their foreign exchange exposure. The Circular states that, banks can engage RMB foreign-currency options trading with companies beginning from April. ICBC Beijing Branch started immediately the preparation for the opening of the service involving understanding of the new policy, the requirement of the companies and set-up of business process. In early April, the Branch completed the formalities with the support from Beijing Foreign Exchange Management Department of State Administration of Foreign Exchange. Subsequently, the Branch concluded the first batch of RMB-foreign currency trade options in Beijing. At present, the Branch offers USD options, Euro options, covering 13 standard option periods. Two-way quotes are offered for customers to buy call/put options.

ICBC Beijing Branch has kept close watch on the market and actively focused on the innovation in exchange rate products and precious metal trading service for personal accounts in a complete product line, said an executive with the Branch. In terms of offering to Group corporations, import/export companies, "Go global" companies, ICBC Beijing provides tailored solutions for them to hedge against exchange rate risks, and hedging products such as forward exchange settlements, RMB-foreign exchange options. In terms of offering to retail investors, the precious metal trading service for personal accounts already includes trading of gold, silver, platinum, in RMB or USD. The trading service is now the most unique among all banks in China for retail investors, who are welcomed to open trading accounts in ICBC at no cost, buy/sell precious metal round-the-clock in real-time or place order up to 120 hours. In a market dominated by wide fluctuations in exchange rate and commodity price, many companies and retail investors gain rich return by using ICBC's exchange rate service and precious metal trading service.