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Business clients › Managing risks › Interest risk › Interest rate swap

Interest risk

• Overview
• Interest rate cap
• Interest rate swap

Interest rate swap is a financial instrument which allows You to replace for a set period in the future variable interest rates for fixed interest rates in case of payment obligations.

By signing the swap contract, one party takes upon him the obligation to pay to the other party fixed sums of interest determined by the contract during a set period of time. The other party takes upon him the obligation to settle the interest payments with variable interest rate.

Conditions

• You have an obligation with a variable interest rate and You wish to insure Yourself against future increase in the interest rate.
• You have assets earning interest at a variable rate and You wish to insure Yourself against the future decrease in the interest rate.
• You wish to speculate on the future change in interest rates.
• Your minimum loan or deposit amount is 200 000 EUR (including amortization of underlying assets or growth estimation).
• Your obligation or asset with interest payments does not have to be tied to Sampo Pank.

Swap deals are flexible and the client can set the following terms:

• The period for which the level of interest rates is frozen (does not have to comply with the duration of the underlying loan).
• The share of the interest risk that is frozen (even managing a part of the risk gives more security than no managing of risk at all).
• As swap-deal obligates both parties for future transactions, on signing the contract the bank needs to agree to provide collateral or credit.
• Swap-deal may include payments in different currencies (in most cases the calculations for interest amounts payable and receivable are based on a single currency.)
• Swap-deal may include the right of the client to withdraw from the deal at any moment. Such contracts are usually agreed on higher levels of fixed interest than normal swap-contracts.

Typical conditions for swap-deals:

• The variable interest rate payable by the bank for the strarting interest period will be determined by the rate effective two banking days before the start of the interest period.
• Periodic settlement of accounts from the difference in the variable interest rate and the fixed interest rate during the contract period take place at the end of each interest period.
• The minimum amount of the transaction is 200 000 EUR or its equivalent.

Requirements

• Deposit on a Sampo Pank current account in the amount agreed on with the bank, or some other liquid collateral (or credit) that is recognised by the bank.
• Effective Customer Agreement on Financial Instruments.