Our Products

Cross Currency Swaps

In a cross currency swap, the parties exchange a stream of payments in one currency for a stream of cash flows in another. The typical cross currency swap involves the exchange of both recurring interest and principal (usually at the end of the swap) and thus can fully cover the risk of a microfinance loan transaction. Conceptually, cross currency swaps can be viewed as a series of forward contracts packaged together.

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Currency Forward Contracts

In the Foreign Exchange market, a forward is a contract that locks in the price at which an entity can buy or sell a currency on a future date. A forward can be used to hedge the exposure to foreign exchange in a microfinance loan when the client only wants to protect principal repayments.

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Currency Options

Option products are used when cash flows are not certain or when the client is looking for both downside protection and upside potential. Available option products include plain vanilla call options, which give the right (but not the obligation) to buy currency at a given price in the future, and range forwards (collars), which allow for risk within a band of currency movement but provide protection for loses above a certain threshold.

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Portfolio risk management

MFX’s Currency Risk Management Service is designed for microfinance or other debt funds that plan to carry some level of open currency position in their portfolio. The Service is built around a portfolio analytics platform that shows the fund manager in real time her financial position and performance relative to current spot markets, forward markets and a variety of future scenarios. Using the model, the client can implement a risk strategy to guide decision-making on where to lend, whether to lend in hard or local currency, and whether and when to hedge a local currency loan. The model also provides all of the information needed for portfolio valuation.

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“Our partnership with MFX is critical to how we do business.   Microfinance Institutions need funding in their own currencies in order to grow safely.   Thanks to MFX we are able to meet their needs while effectively managing our risk.”

Incofin
Head of Risk Management , Incofin, Belgium

MFX is the impact sectors’ only dedicated currency hedging facility.