Foreign Exchange Services

What happens if your plans change?

An illustration of spot or forward contract breakage costs.

Should your commercial circumstances change and you need to terminate your spot or forward contract with Barclays, there may be a “breakage cost”, or gain, which depends on how the prevailing forward rate has changed.

At the time of your entry into an FX transaction, the size of these breakage costs, or gains, on early termination cannot be predicted, as forward rates can increase as well as decrease, by an upredictable amount. Below are two examples to help you understand how the breakage cost or gain is calculated:

Example 1:

1. You sell GBP 1,000,000 and buy USD at a forward rate of 1.3000, equating to USD 1,300,000 for settlement in 30 days
2. 10 days into the contract, you decide you no longer require the USD and request to terminate the contract. A second contract to sell USD and buy back GBP 1,000,000 must be booked at the new prevailing GBP USD forward rate for when the original contract was due to settle. If the GBP USD forward rate has risen to 1.3650, this would equate to USD 1,365,000
3. You will gain/owe the difference between these contracts: in this example, you would owe USD 65,000 to Barclays for settlement 30 days after the date of the original trade¹
4. Table 1 illustrates the cost or gain to you if the exchange rates move by a given percentage when selling GBP1,000,000.

Example 2:

1. You sell GBP 100,000 and buy USD at a forward rate of 1.3000, equating to USD 130,000 for settlement in 60 days
2. 5 days into the contract, you decide you no longer require the USD and request to terminate the contract. A second contract to sell USD and buy back GBP 100,000 must be booked at the new prevailing GBP USD forward rate for when the original contract was due to settle. If the GBP USD forward rate has fallen to 1.1700, this would equate to USD 117,000
3. You will gain/owe the difference between these contracts: in this example, you would gain USD 13,000 from Barclays for settlement 60 days after the date of the original trade.¹
4. Table 2 illustrates the cost or gain to you if the exchange rates move by a given percentage when selling GBP 100,000.

¹Forward contracts are designed to be held for the term of the contract. Breakage costs or gains may also be influenced by factors including bid-offer spreads, credit-worthiness, market liquidity and timing of execution. The breakage costs or gains presented on this slide are purely indicative and should not be taken as a future commitment by Barclays to cancel the transaction at these levels. Further scenarios can be provided on request.

Read the ‘Supporting your foreign exchange needs’ brochure PDF† (4.2MB)

Each Transaction will form a separate contract between us. Each contract entered into by you and us in respect of a Transaction will be deemed to incorporate the terms of the Spot and forward agreement into which you will enter or may have entered.

We will not provide any advice, representations as to suitability, or provide you with any personal recommendations in relation to a Transaction or advice or representations in respect of the tax, legal or accounting treatment of any Transaction. We will not assess whether a Transaction meets the objectives of your business and you must determine on your own behalf or through independent financial advice, the merits, terms, conditions and risks of a Transaction and the potential impact on your business. You may also wish to obtain independent legal, accounting or tax advice in relation to a Transaction.

We act as principal and not as agent on your behalf. You confirm that the information that you have provided and provide from time to time to allow us to assess the appropriateness of the activities and services we are providing to you is accurate and complete.

The performance and valuation of Transactions linked to currency exchange rates will fluctuate due to market volatility which may be sudden and large and may be affected by other factors including, but not limited to, economic and political events.

You should be prepared to allow a Transaction to run until maturity. If not, you may incur a breakage cost. Early termination of Transactions will be subject to a breakage cost (or profit) based on the market value of a Transaction at that time. Breakage costs will differ from a mid-market valuation due to factors including, but not limited to, bid offer spreads, creditworthiness, market liquidity and timing of execution.

It may be possible for you to transfer (novate) a Transaction to another financial institution if they are willing to accept the novation. Should you wish to novate such a Transaction, it will be your responsibility to identify any such financial institution.

Where you have other facilities with us a Transaction may be linked to those facilities for reasons including, but not limited to, cross default and other early termination events. In addition, we may be entitled to enforce any security held if there is a default under a loan or a hedging contract, in which case a Transaction may be terminated early. The terms of any such facilities and/or security will be contained within your facility, security and/or transaction documentation. Any such linkages may restrict your ability to move your banking relationship without either novating such Transaction or terminating it early.

An indicative mid-market valuation of your position is available upon request.

Where you are entering into a Transaction to hedge an underlying exposure to market risk, you are responsible for determining the extent and nature of your underlying exposure, and the effectiveness of the Transaction as a hedge. Any mismatch between the underlying and the hedge transaction may lead to under-hedging or over-hedging with consequent market risk.

Depending on the liquidity of the underlying market, there may be instances where we are not able to terminate a Transaction on demand. Where we accept an Instruction or an Order in relation to a currency or currencies which are or become illiquid, it is possible that execution or settlement of a Transaction will be affected by such illiquidity. In some cases, it might not be possible to execute or settle a Transaction as specified in an Instruction or an Order.

A Transaction carries our credit risk.

We may have positions in, and non-public information about, the markets underlying a Transaction. We will not disclose any such information to you. Our trading and hedging activity may impact these markets.

You should be aware that foreign exchange rates move continuously throughout the day and it is possible that the foreign exchange rate at which an Order is executed may be worse than the foreign exchange rate specified in the Order as a result of market movements or otherwise. The foreign exchange rates used for the purposes of any Transaction (including, for the avoidance of doubt, any Instruction or Order) will be the rates that are available to you as a customer of Barclays Bank PLC and, as such, these rates may differ from published inter-bank rates.

To the extent that the content in these materials relates to derivatives, such content was prepared by an associated person of a swap dealer associated with Barclays Bank PLC. This content is provided to you for informational purposes only and should not be regarded as a solicitation to enter into a swap or security-based swap transactions. If you would like further information regarding Barclays Bank PLC’s swap or security-based swap product offerings, we are happy to put you in contact with an appropriate member of the Barclays team who can provide that information and answer questions you may have.

Barclays and its affiliates do not provide tax advice. You should seek advice based on your particular circumstances from an independent tax advisor. Each recipient (and their employees, representatives and other agents) may disclose to any and all persons at any time the U.S. federal and state income tax treatment and tax structure of any proposed transaction and all materials of any kind that are provided relating to such tax treatment and tax structure.

Barclays will only ever credit a payment to the account specified in the instructions received from the payer’s account provider, even if the Customer has a separate account in the same currency as the payment Barclays has received.

If the Customer receives a payment, or asks Barclays to make a payment, in a different currency from that of the account, Barclays will determine the foreign exchange rate to apply based on a Reference Exchange Rate. The Reference Exchange Rate is a rate calculated or obtained by Barclays which changes regularly with currency market movements. The Reference Exchange Rate and how it is determined will vary depending on the currency pair (the currency to be converted and the currency of the payment). The Customer can obtain details on the current Reference Exchange Rate for a particular currency pair by contacting its Relationship Team.

For most currencies, Barclays calculates the foreign exchange rate by adding an FX Margin to the Reference Exchange Rate. In these cases, the FX Margin is determined by the amount of the payment and is set out in the Customer’s price plan. The Customer can obtain its price plan from its Relationship Team.

For other currencies, Barclays offers only a limited range of payment services. For these currencies, the foreign exchange rate is the Reference Exchange Rate which Barclays will provide to the Customer on request. The Customer can obtain details of these currencies and how Barclays calculates the foreign exchange rate for those currencies, by contacting its Relationship Team.

If the Customer asks Barclays to make a payment on a future date and does not agree a rate for that payment, Barclays will calculate the foreign exchange rate using the relevant Reference Exchange Rate at the time it processes the payment.

If the Customer asks Barclays to make a payment which will require a currency conversion, Barclays will confirm whether the foreign exchange rate is guaranteed or indicative.