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Break Costs

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 and 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 1.6000, equating to USD 1,600,000 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 1.6800, this would equate to USD 1,680,000
  3. You will gain/owe the difference between these contracts: in this example, you would owe USD 80,000 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 1.6000, equating to USD 160,000 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 1.4400, this would equate to USD 144,000
  3. You will gain/owe the difference between these contracts: in this example, you would gain USD 16,000 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.

Example 1: Selling GBP 1,000,000

GBP USD forward rate

% change from 1.600

GBP 1,000,000 USD equivalent

Gain or loss to you (in USD)

1.2800

-20%

1,280,000

320,000

1.4400

-10%

1,440,000

160,000

1.5200

-5%

1,520,000

80,000

1.5840

-1%

1,584,000

16,000

1.6000

0%

1,600,000

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1.6160

1%

1,616,000

-16,000

1.6800

5%

1,680,000

-80,000

1.7600

10%

1,760,000

-160,000

1.9200

20%

1,920,000

-320,000

Example 2: Selling GBP 100,000

GBP USD forward rate

% change from 1.600

GBP 1,000,000 USD equivalent

Gain or loss to you (in USD)

1.2800

-20%

128,000

32,000

1.4400

-10%

144,000

16,000

1.5200

-5%

152,000

8,000

1.5840

-1%

158,000

1,600

1.6000

0%

160,000

-

1.6160

1%

161,000

-1,600

1.6800

5%

168,000

-8,000

1.7600

10%

1,760,000

-16,000

1.9200

20%

192,000

-32,000

*
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