product disclosure statement - world first · 1. key information introduction and purpose the...

Product disclosure statement

Contents

This PDS1. Key information

Important risk notice Changes to this PDS Your contract with World First 2. About us 3. How to Open an Account with World First 4. Introduction to foreign exchange contracts 5. Spot Contracts

Significant benefits of spot contracts Significant risks of spot contracts How do foreign exchange spot contracts work? Example of a Spot Contract 6. Forward Contracts The significant benefits of Forward Contracts

7.

The significant risks related of Forward ContractsHow do Forward Contracts work?Example of a Forward Contract for an importerOption ContractsThe significant benefits of Option ContractsThe significant risks of Option ContractsHow Option Contracts WorkThe Protection Option for importersThe Covered Call for exportersThe Leveraged Risk Reversal for importers The Participating Forward for exporters

The Convertible Forward for importersLeveraged Releasable Forward for importers

The Convertible Accelerator Forward for importersThe Convertible Bonus for importersThe Convertible Put Spread for importers

Knock-Out Forward for importers

The Enhanced Range Forward for importers The Target Accrual Redemption Forward for importers The Daily Accumulator for exporters Margin amounts for Forward and Option Contracts

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Contents

8.

9.

10.11.12.13.14.15.16.17.18.19.20.21.

Significant benefits of our products Manage Volatility Provide Cash Flow Certainty Tailored and Flexible Potential to profit in both rising and falling markets High Level of Liquidity Real time quotes Significant risks explained Leverage Market Volatility Counterparty Risk Obligation to Actively Monitor Your Transactions Opportunity Cost Basis Risk System Risks Transactions are not Transferable Abnormal Market Conditions or Force Majeure Discretionary Powers of World First Out of the Money Option Contracts How we are paid Costs of the products Terms and Conditions Providing instructions by telephone How we handle your money Stopping or cancelling a payment Tax implications

Would you like more information? What should you do if you have a complaint? Protection of personal information Glossary

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1. Key Information

Introduction and purposeThe purpose of this Product Disclosure Statement (PDS) is to provide you with sufficient information to enable you to make an informed decision about whether to purchase a financial product from World First Pty Ltd (World First, us, we, our) ACN 132 368 971. You may also use this PDS to compare the financial products described with other issuers of similar products.

When we use the term “you” we mean you as the acquirer of our financial products. When we refer to “client” we mean you or another acquirer of our financial products as applicable.

World First is the issuer of the products described in this PDS. Should you have any queries about this document, please do not hesitate to contact us. Our contact details are at the top of this PDS.

This PDSThis PDS is an important document which contains information that you need to know about the products we can o�er you. It is designed to:

The information in this PDS is general information only and does not take into account your personal objectives, financial situation and needs. You should consider these things and seek independent professional advice before making a decision about our financial products.

We also have a Financial Services Guide that gives you more information about us and the products and services we can o�er you. Please contact us using the details at the beginning of this PDS to get a free copy of this document.

Important risk noticeDecisions to enter into transactions involving foreign exchange products are very important. They often have significant risks and consequences. Refer to the Significant Risks Explained section of this PDS for more information about significant risks in trading foreign exchange products.

• Provide you with the information you need to determine whether the products we o�er are appropriate for you needs.

• Explain the terms and conditions, rights and obligations associated with our products.

• Help you to compare products.

Issuer: World First Pty Ltd ACN 132 368 971Address: Level 5, 261 George Street, Sydney, NSW 2000Phone: 1-800 701 540 (within Australia) +61 (0)2 8298 4999 (International)Fax: +61 (0)2 8298 4988Email: [email protected]: www.worldfirst.com.au

Australian Financial Services Licence Number: 331945Preparation date: 27 May 2013.Version: 5


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It is your responsibility to ensure that you fully understand the products, how they are traded and the risks involved. This document may not contain all of the information that you need in order to fully understand the products and the risks.

To the extent permitted by law, neither World First nor its affiliates accepts any responsibility for errors or misstatements, negligent or otherwise, nor for any direct, indirect, consequential or other loss arising from any use of this document and or/further communication in relation to it.

Changes to this PDS Information in this PDS that is not mate-rially adverse to users of our products is subject to change and may be updated via our company website. You can access that information by visiting the website, or tele-phoning us and asking for an electronic or paper copy. You can also access the web-site which may contain, from time to time, other information about our products.

Your contract with World FirstWhen you acquire a product from us you are entering into a contract with World First in relation to the product. That contract is made up of:

• the account opening application form;

• the description of the products in this PDS; and

• the terms and conditions provided to you (this is usually part of the account opening application form, but may include extra documents).

The account opening application form and our standard terms and conditions are separate documents to this PDS. The terms and conditions and description of fees and products within those documents forms part of this PDS. A copy of those documents are available upon request, at no charge, by contacting us using the details at the beginning of this PDS.

We will send you a receipt for each foreign exchange transaction you place with us. Please ensure that you verify the information contained on the receipt. If there is a discrepancy please contact us immediately using the contact details at the beginning of this PDS. If we do not hear from you we will proceed as instructed and you will be bound by the information we have provided to you (which may include a document called a trade confirmation notice). To the extent of any inconsistency, the terms of this PDS prevail over any other terms and conditions.

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2. About us World First is authorised to give both retail and wholesale clients general and personal advice in relation to “non-cash payment products”, “derivatives” and “foreign exchange contracts”. Put simply, this involves advising you about di�erent types of money transfer or currency exchange services.

World First is also authorised to deal in relation to those same products. This means that we can help you to completely utilise our service, fill out the forms, undertake and complete the transactions for you.

World First is also authorised to “make a market” for foreign exchange and derivatives contracts. This allows us to quote market prices to you.

World First Pty Ltd is a wholly owned subsidiary of World First UK Limited.

3. How to open an account with WorldFirst

You are required to:

Complete an account opening application form. Read and accept our terms andconditions. Submit supporting documentation as indicated on the application form. and submit supporting documentation (as indicated on the application form).

These forms and the supporting documentation must be completed, signed, and returned to us via facsimile, mail, email, or in person. Upon receipt of these documents we will conduct an analysis process to approve you as a customer.

4. Introduction to foreign exchange contractsForeign exchange contracts help you transfer one currency into another currency. They are also a risk management tool used to obtain protection against adverse exchange rate movements. They involve an agreement between you and us to exchange one currency for another on a pre-agreed date. World First specialises in three types of foreign exchange contracts: Spot Contracts This is a foreign exchange contract for buying and selling currency where the settlement date is between 1 and 2 days after the date of entering the contract.

Forward Contracts This contract is similar to a spot foreign exchange contract, except that a Forward Contract allows you to buy or sell one currency against another for settlement at a later date (typically between 3 days to 2 years). Forward Contracts are generally used by businesses or individuals who would like to fix the exchange rate for a future date. This provides the ability to manage exposure to currency movements and manage cash flows. Option Contracts Option Contracts can be quite complex. In their simplest form, they are a financial instrument where the owner has the right but not the obligation to exchange one currency into another currency at a pre-agreed exchange rate on a specified date.

Financial services guide

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5. Spot Contracts Foreign exchange spot contracts are a basic tool for exchanging currency and are the simplest method of managing foreign exchange risk. Significant benefits of spot contracts: An extremely efficient and easy way to repatriate overseas earnings, make a foreign currency payment and manage foreign exchange risk.

Significant risks of spot contracts:

• The

• There

• The

risk that your money may be delayed or lost due to an event or incident of a sovereign, strategic, political or governmental nature in any of the countries in which World First operates. In such an event, World First would attempt to recover your money. If World First executed the transfer, with knowledge that such an event or incident had occurred, and did not notify you of the additional risk when making the transfer, then World First would refund your transfer, less the transfer costs.

is a risk that your money may be delayed or lost due to unforeseen circumstances. World First will not provide a refund due to “force majeure” as defined in the case law of Australia. This includes catastrophic disasters, terrorist attacks and other events that a�ect our services.

spot exchange rate can be volatile even over a short period of time such as 1 trading day. Therefore, you may fix the rate with a spot contract at 9am for example and you may lose money by not fixing the rate at a later time of the same day.

We will then quote you a spot rate.If you accept the rate over the phone, then you are bound to the transaction. We will then send you by email a trade confirmation notice. You send the agreed amount to our nominated bank account on the agreed date. On receipt of your funds, we make the currency conversion at the agreed foreign exchange rate which was based on the prevailing spot exchange rate at the time of the transaction.

We then arrange for your bought currency to be sent to your nominated bank account.

How do foreign exchange spot contracts work?To exchange currencies at the current foreign exchange rate, you advise us of the following information:

• The amount of money you wish to exchange.

• The two currencies involved.

• Which currency you would like to buy or sell.

• The date by which your currency will arrive in the World First bank account

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Example of a Spot Contract

6. Forward ContractsForward Contracts allow you to buy or sell one currency against another for a set settlement date typically between 3 working days and 2 years from the date of the deal. Forward Contracts are used by companies or individuals who would like to fix the exchange rate for a future date in order to manage their foreign exchange exposure and manage future cash flows.

The significant benefits of Forward Contracts

• A simple way of managing future currency exchange risk and negating any unfavourable movements in exchange rates.

• The ability to fix an exchange rate now for delivery of currency in the future. This means that you know what you will have to pay on a future date. This allows for improved money management of cash flows and costs.

• If you are not sure of the exact date that you will need the funds, you will still be able to specify a special delivery period. This means you will be able to draw down on the funds within an agreed period of time.

For example, Mr. Smith is buying a boat from Europe and needs to send EUR 100,000 to the boat builder’s bank account in France immediately. Assuming Mr. Smith has an account with World First, he telephones World First and asks for a quote to buy EUR 100,000 and sell Australian dollars for settlement in 2 working days’ time. World First quotes him a rate 0.7500.

Mr. Smith accepts the rate of 0.7500 and World First sends him a trade confirmation notice. Mr. Smith makes a bank payment the next day to World First’s Australian bank account for AUD 133,333.33 and informs World First where to send the Euros.

World First receives the AUD 133,333.33 the next day.

The next day (2 days after agreeing to the rate), World First sends EUR 100,000 to the beneficiary in France that Mr. Smith has specified.

The significant risks of Forward Contracts

• A forward exchange contract fixes a rate and a delivery date. This means it does not allow you to take advantage of a favourable movement in the exchange rate.

• If you use the forward exchange contract to cover an obligation that ceases to exist, or it changes prior to the delivery, then the contract may need to be closed out. This means you may incur a loss or be required to take out further currency protection to cover the changed exposure.

• A relatively small margin (typically between 3% to 20%) of the total transaction is required to enter into a forward exchange contract. This margin only represents a small percentage of the transaction; the market value will be determined by the full amount of the transaction. The contract is therefore susceptible to small movements in the market leading to large losses or gains. This means there could be a significant impact on the funds you have deposited and may require you, on short notice, to provide additional funds to cover marginpayments and your position.

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Margin call amounts will vary depending on, but not limited to, notional value, currency pair and market volatility. A failure to meet the margin call can result in the enforced liquidation of your exchange position as well as additional losses.

How do Forward Contracts work?To conduct a forward foreign exchange contract, you advise us of the following factors:

• The amount of money you wish to exchange.• The two currencies involved. • Which currency you would like to buy or sell.• The future settlement date.

We will then quote you a forward rate and tell you what deposit you will need to send us in order to enter into this forward contract.

If you accept the rate over the phone, you are bound to the transaction. We will then send you a trade confirmation notice by email. You send the agreed margin amount so it reaches our nominated bank account on the agreed margin settlement date. On the settlement date of the forward contract, you send the balance of the forward contract to our nominated bank account. On receipt of your funds, we make the currency conversion at the agreed foreign exchange rate which was based on the prevailing “forward exchange rate” at the time that the transaction was originally entered into. We then arrange for the purchased currency to be sent on the pre-agreed settlement date of the contract to your nominated bank account.

Example of a Forward Contract for an importer For example, An Australian Company, BC Importers, is importing a boat from Europe and needs to send EUR 100,000 to the boat builder’s bank account in France in 3 months’ time when they are due to take delivery of the boat.

Assuming BC Importers has an account with World First, the authorised company employee (the Finance Director for example) telephones World First and asks for a quote to buy EUR 100,000 and sell Australian dollars for settlement in 3 months’ time. World First quotes him a rate 0.7800 and informs him that we will require a 10% initial margin of AUD 12,820.51 to be paid within 2 days.

BC Importers accepts the rate of 0.7800 and World First sends a trade confirmation notice. The employee makes a bank payment the next day of AUD 12,820.51 which is a margin payment that guarantees him the exchange rate of 0.7800 that World First has quoted him.

In 2 months time, the AUDEUR spot rate is trading at 0.8600; World First must margin call BC Importers as the close-out cost of the contract is over 9% of the 10% initial margin established. World First would issue a margin call for an additional AUD 12,820.51 that must be paid within 2 days in order to keep the position open. BC Importers pays the required margin call and now has AUD 25,641.02 in margin held against the forward contract.

In 3 months time, BC Importers sends World First the balance of AUD 102,564.11 and informs World First where to send the Euros. World First receives the AUD 102,564.11 and in total, has received AUD 128,205.13 from BC Importers. The day after that World First sends EUR 100,000 to the beneficiary in France that BC Importers has specified.

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A few common Options Contracts which we o�er are: • The Protection Option• The Covered Call• The Leveraged Risk Reversal• The Participating Forward • Leveraged Releasable Forward• The Convertible Forward• The Convertible Accelerator Forward• The Convertible Bonus Forward• The Convertible Put-Spread• The Knock-Out Forward• The Enhanced Range Forward• The Targeted Accrual Redemption Forward• The Daily Accumulator

exchange options can be used to produce hedging strategies that are tailored to fit your exposure, currency forecast and risk level.

The significant risks of Option Contracts • When you enter into a protection option, you will have to pay a premium unlike when you enter into a forward contract.

We may also, from time to time, o�er variations on these strategies, or create di�erent combinations of option contracts. Some structures can be leveraged to achieve certain objectives. A leveraged contract is one where the client may be obligated for a larger amount than that which they hold a right for. In addition to this, some options may be settled for their cash value rather than delivered currency. A combination of cash valued and delivered currency options may be used in a structure to achieve an enhanced exchange rate. This additional improvement in the exchange rate achieved on a set notional amount can be applied if the market trades up, down, or both, from a set point, within certain parameters.

The significant benefits of Option Contracts • Foreign exchange options give you flexibility when hedging foreign currency exposures. • They can provide you with protection via a worst case rate but also allow you to benefit should the exchange rate move in your favour.• Foreign exchange options can provide

• Foreign

you with a worst case rate like a forward contract. This means that you know the maximum amount you will have to pay in the future so you will be better able to manage your cash flows and costs.

7. Option ContractsWorld First o�ers a number of di�erent Options Contracts. Mention of an “Option Contract” in this PDS can be a reference to a number of option contracts, or option strategies. This section of the PDS will use specific terms pertaining to option contracts, please refer to the glossary for definitions. There is no limit to the di�erent variations and combinations of Option Contracts. Generally, however, they work in two ways:

They provide protection and guarantee a “worst case rate”, whilst allowing for participation in favourable exchange rate moves. The extent of participation in favourable exchange rate moves may or may not be unlimited depending on the structure. There may or may not be a premium paid for these strategies.

They achieve outperformance of the prevailing forward or spot rate, whilst providing no guaranteed “worst case rate”. There is generally no premium paid for these strategies.

1.

2.

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How Option Contracts WorkThe Protection Option for importersThe Protection Option provides you with the right to buy a currency on a pre-determined date at a pre-determined rate. However, at expiry, you can elect not to exercise the Protection Option and buy in the spot market if the spot rate is more advantageous.

For example, a client imports furniture from the US, and needs to sell AUD 1 million and buy USD in six months’ time to pay a supplier.

The forward rate for six months is 1.0200 and the client doesn’t want to get a worse rate than 1.0000.

The client would purchase a protection option at 1.0000 maturing in six months’ time. A premium of AUD 20,000 would be payable to World First for the protection option.

Possible Scenarios:• Scenario 1 : If, at expiry, the exchange rate is trading below 1.0000, the client would simply exercise the protection option and buy the US dollars at 1.0000.• Scenario 2 : If, at expiry, the exchange rate is trading at 1.0500, the client simply transacts in the spot market and achieves a rate of 1.0500 and the protection option expires, worthless.

The advantages are that:• The client has certainty of a worst case exchange rate

• The client has 100% protection if the rate moves against him• The client has 100% flexibility if the rate moves in his favour

The disadvantages are that: • There is a premium payable by the client (in this example 2% of the notional amount = AUD 20,000)

The protection option combines the certain protection provided by a forward contractand the flexibility of being able to leavean exposure un-hedged. A premium ispayable for a protection option.

• When you enter into a zero premium

option structure with a permanent protection rate, the protection rate will generally be less favorable than the prevailing forward.• When you enter into a zero premium option structure with a permanent protection rate, your participation in favourable exchange rate movements may be limited so that you generally do not achieve a more favourable exchange rate than you would buying on the spot market. • If you use an option structure to

cover an obligation that ceases to exist, or changes, prior to the delivery then the contract may need to be closed out. This means you may incur a loss or be required

to take out further currency protection to

cover the changed exposure.• A margin (typically between 3% to 20%) of the total transaction is required to enter into the option contract. A leveraged contract is susceptible to small

movements in the market leading to large

losses or gains. This means there could be a significant impact on the funds you have deposited and you may be required,

on short notice, to provide additional funds to cover margin payments and your position. A failure to meet the margin call can result in the enforced liquidation of your exchange position as well as additional losses. A margin is required for all option contracts where a potential obligation to trade may exist against you.

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Forward Rate1.07

1.06

1.05

1.04

1.03

1.02

1.01

1.00

0.99

0.98

0.97

0.9

5

0.9

6

0.9

7

0.9

8

0.9

9

1.00

1.01

1.02

1.03

1.04

1.05

Hedge Rate

Hed

ge R

ate

Spot Rate At Expiry

The Covered Call for exporters The Covered Call can be used by a client that holds foreign currency and is looking to repatriate the funds into their home currency. You sell a right, for which you receive a premium that can obligate you to sell the foreign currency at the strike rate. If the spot rate at expiry is lower than the strike, you will be obligated to sell at the strike. If the spot rate at expiry is above the strike, the option will not be exercised and you may sell a right for the subsequent expiry until the foreign currency is sold.

For example, a client exports manufactured goods to the USA and gets paid in USD. He has USD 1 million held in the USA and would like to repatriate the USD and convert it into AUD. If the current spot rate is 1.0000, the client can sell an USD call with a strike of 0.9800 and receive an upfront premium of 1% (USD 10,000). The client will then be obligated to buy AUD and sell USD if the spot rate at expiry is below the strike rate of 0.9800.

Scenario 1 : AUD/USD strengthens and is trading at 1.0200 at expiry. The option will not be exercised and the client can sell the USD in the spot market or sell another USD call for the next month.Scenario 2 : AUD/USD weakens and is

trading at 0.9600 at expiry. The option wil be exercised and the client will be obligated to sell USD 1,000,000.00 and buy AUD at 0.9800.

The advantages are that:• The client receives an upfront premium• The client achieves a strike rate that is more favourable than the prevailing spot rate.• The client is not obligated to sell USD if the rate moves out of his favour.

The disadvantages are that:• Favourable exchange rate movements will be capped at the strike rate • There is no protection or worst case rate.

•

•

Possible Scenarios:

The Leveraged Risk Reversal for importers

The Leveraged Risk Reversal provides you with the right to buy a cur rency on a pre-determined forward date at a worst case rate. It also p rovides you with an obli gation to buy a la rger amount of currency (the Leveraged Amount) on a pre-determined forward date at a best case rate. If the spot rate at expiry is better than the best case rate, your hedge rate is limited to the best case rate. If the spot rate at expiry is worse than the worst case rate, your hedge rate is protected at the worst case rate. If the spot at expiry is between the worst case rate and the best case rate, you can buy your currency at the spot rate at expiry.

For example, a client buys white goods fromChina and forecasts that he will need to buy USD 1 - 2 million in six months’ time to pay fora shipment. The forward rate for six monthsis 1.0000. The client would like to give himselfa worst case rate but he is worried that if he enters into a forward contract, the rate might move up and he will be unable to benefit from the move. However, he does not want to pay a premium for this. We inform him that he can have a worst case rate of 0.9800 wherehe has the right to buy USD 1 million. He can therefore achieve a best case rate to 1.0300, where he will be obli gated to by USD 2 million, if the spot rate is over 1.0300 at expiry.


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1.07

1.06

1.05

1.04

1.03

1.02

1.01

1.00

0.99

0.98

0.97

0.9

5

0.9

6

0.9

7

0.9

8

0.9

9

1.00

1.01

1.02

1.03

1.04

1.05

Available Sell Rate

Hed

ge R

ate

Spot Rate At Expiry

Scenario 1: AUD/USD strengthens and at expiry the exchange rate is 1.0400. The client is obligated to buy USD 2,0000,000.00 at 1.0300. Scenario 2: AUD/USD weakens and at expiry the exchange rate is 0.9500. The client is protected and buys USD 1,000,000.00 at 0.9800.Scenario 3: AUD/USD is trading between 0.9800 – 1.0300 at expiry. The client can buy his required amount of USD at the prevailing spot rate at expiry.

The advantages are that:• The client has certainty of a worst case exchange rate.• The client has protection if the rate moves against him.• The client can benefit if the rate moves with him up to a best case rate.• The client pays no premium. The disadvantages are that:• If AUD/USD trades lower that 1.0000, it would have been better if the client had entered into a forward contract.• If AUD/USD is trading above 1.0300 at expiry, it would have been better if he had remained un-hedged.• The client does not know if he will be obligated to buy the leveraged amount at expiry.

•

•

•

Possible Scenarios:

The Participating Forward for exporters The Participating Forward protects you by providing you with a worst case rate for your full exposure, like a forward contract. However, it allows you to participate in any favorable exchange rate move for 50% of your currency exposure. There is no premium payable for a Participating Forward.

For example, a client sells wine to the UK and forecasts that he will need to repatriate GBP 1 million into Australian dollars in six months’ time. The AUD/GBP forward rate for six months is 0.6200. The client would like to give himself a worst case rate but he is worried that if he enters into a forward contract, the rate might move down and he will be unable to benefit from the move. However, he does not want to pay a premium for this. We inform him that he can have a worst case rate of 0.6300 on the total amount – However he may benefit by selling half his pounds at 0.6300 at expiry and the remaining half at the prevailing spot or forward rate at any time before settlement if the spot rate is trading below 0.6300.

Possible Scenarios: Scenario 1 : AUD/GBP weakens and at expiry he exchange rate is 0.6000. The client is obligated to sell GBP 500,000 at 0.6300. However, the remaining GBP 500,000 can be sold in the spot market at 0.6000. This will give the client an average rate of 0.6146. Scenario 2 : • AUD/GBP strengthens and at expiry, the exchange rate is 0.6500. The client sells GBP1,000,000.00 at 0.6300.

The advantages are that:• The client has certainty of a worst case rate• The client has 100% protection if the rate moves against him. • The client can partially if the rate moves favourably• The client pays no premium.

The disadvantages are that:• If the rate moves unfavourably, a more favourable rate would have been achieved with a forward contract. • The client can only partially benefit from favourable rate movements.

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Forward Rate

Notional Amount

Leveraged Amount

Hed

ge R

ate

Spot Rate At Expiry

Leveraged Releasable Forward for importers

A Leveraged Releasable Forward allows you to book a Leveraged Forward Contract at an equivalent rate to the prevailing forward, with the possibility of the obligation on you being released. A release event occurs when the lower barrier rate, normally set as close to the strike rate as possible, is traded in the spot market during the life of the trade. If this event occurs, any future obligation on you ceases to exist, leaving a cost free permanent protection option for the notional amount at the strike rate, with unlimited benefit above the strike rate. If the spot rate is trading above the strike rate at expiry and a release event has not occurred, an obligation exists for you to buy the leveraged amount at the strike rate for that expiry.

For example, a company imports sunglasses and has a requirement to buy USD 100,000 and sell AUD in six months time. This client normally enters into forward contracts and the current six month forward rate is 1.0000. The client would like the ability to participate in upside movements in the AUD. Using a Leveraged Releasable Forward the client can achieve a rate of 1.0000. The lower barrier rate for the contract is 1.0000 and is active for the life of the trade. If the spot rate trades at or below 1.0000 at any time during the life of the trade, the obligation to buy USD 200,000 will cease to exist. The client will retain their permanent right to buy USD 100,000, selling AUD, at 1.0000. The client may choose to exercise this right if the rate is below 1.0000 at expiry, or choose not to exercise and buy at the higher spot rate if AUD/USD is trading above 1.0000.

Possible scenarios for each month: Scenario 1 : AUD/USD strengthens to 1.0400 and does not drop below 1.0000 during the life of the trade. At expiry, the client will be obligated to buy USD 200,000, selling AUD, at 1.0000. Scenario 2 : • AUD/USD weakens and is trading at 0.9500 at expiry. The obligation to buy USD 200,000 will be released and at expiry the client will exercise his right to buy USD 100,000, selling AUD, at 1.0000. Scenario 3 : AUD/USD weakens 0.9950 then strengthens to 1.0400 at expiry. When the spot rate trades below 1.0000, the obligation to buy USD 200,000 will cease to exist. The client will be left with a protection option at 1.0000. At expiry, he may purchase USD 100,000.00 on the spot market at 1.0400.

The advantages are that:• The client achieves a guaranteed rate no worse than the prevailing forward.• The client has unlimited upside if the barrier rate is traded during the life of the trade

The disadvantages are that:• If the barrier rate is not traded, the client may be obligated at a less favourable rate than that of the equivalent leveraged forward contract.

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•

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Forward Rate

Hedge Rate

Hed

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ate

Spot Rate At Expiry

Leveraged Amount

0.58

0.59

0.60

0.61

0.62

0.64

0.65

1.05

1.04

1.03

1.02

1.01

1.00

0.99

0.98

0.5

5

0.5

6

0.5

7

0.5

8

0.5

9

0.6

0

0.6

1

0.6

2

0.6

3

0.6

4

0.6

5

Notional Amount

Release point

Hed

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ate

Spot Rate At Expiry

0.9

5

0.9

6

0.9

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0.9

8

0.9

9

1.00

1.01

1.02

1.03

1.04

1.05

The Convertible Forward for importers The Convertible Forward enables you to fix a worst case rate for the currency that you are looking to sell on a pre-determined date in the future. You also set a best case rate. If the spot market trades at or above the best case rate at any time during the active period, you are obligated to deal at the worst case rate. If the spot market has not traded at or above the best case rate, and the spot rate at expiry is above the worst case rate, you may settle the trade at the current spot rate. Therefore this strategy may be suitable for you only if you believe that the spot exchange rate will not reach or exceed the best case rate during the active period.

The following pages will detail three possible variations of a Convertible Forward structure.

For example, a client imports shower curtains from America and she forecasts having to purchase USD 1 million in six months’ time.

The forward rate for six months is 1.0000 and the client wants to take advantage of possible further strength of the AUD. She would like to take advantage of this forward rate but she feels that AUD/USD may move higher over the next six months. Therefore, she accepts a worse case rate of 0.9900. This enables the client to benefit from a favorable move in 100% of her exposure up to the best case rate of 1.0600. If the spot rate trades at or above 1.0600 at any time during a specified active period, the rate for the contract converts to 0.9900, regardless of subsequent movements in the spot exchange rate.

Possible Scenarios: Scenario 1 : AUD/USD weakens to 0.9600. On the settlement date, the client may buy USD 1,000,000.00 at the worst case rate of 0.9900. Scenario 2 : AUD/USD strengthens and trades at or above 1.0600 during the specified active period of the contract and at expiry. The client is now obligated to buy USD 1,000,000.00 at 0.9900. Scenario 3 : AUD/USD strengthens and at expiry the exchange rate is 1.0500 at expiry, however, has not traded above 1.0600 during the specified active period. The client may buy USD in the spot market at expiry. The advantages are that:• The client has 100% protection on the exposure at the worst case rate. • The client can benefit from favourable currency moves up to the best case rate.• The client pays no premium.

The disadvantages are that:• If the spot rate trades at or above the best case rate at any time during a specified active period, the rate converts to the worst case rate. In this case, the client would have achieved a more favourable rate using a forward. • The client can only partially benefit from favourable rate movements.• If the exchange rate at expiry is below the worse case rate, the client would also have achieved a more favourable rate using a forward.

•

•

•

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Forward

1.06

1.07

1.08

1.05

1.04

1.03

1.02

1.01

1.00

0.99

0.98

0.97

0.96

0.9

8

0.9

9

1.00

1.01

1.02

1.03

1.04

1.05

1.06

1.07

1.08

Notional Amount

Hed

ge R

ate

Spot Rate At Expiry

The Convertible Accelerator Forward for importers The Convertible Accelerator Forward has all the features of the Convertible Forward listed above, however, pays an accelerated rate up to a best case rate. This structure may allow you to achieve an Accelerated Rate by buying an additional right to purchase the sell currency at the worst case rate. This right will also have a termination condition, where it will cease to exist if the spot rate trades at or above a barrier; the best case rate. At expiry, if the spot rate is trading above the strike rate, and has not traded at or above the best case rate during the active period, you may settle the trade at the current spot rate. An Accelerator Credit will be earned by selling back the additional right in the spot market. The Accelerator Credit will contribute to the settlement of the spot market purchase, allowing you to achieve the Accelerated Rate.

If the Accelerator Credit is earned in the terms currency, the Accelerated Rate achieved is:

Accelerated Rate = 2×Spot Rate - Strike Rate

Accelerated Rate =

AcceleratedRate =

1

12Spot rate Strike rate

If the Accelerator Credit is earned in the base currency, the Accelerated Rate achieved is:

With reference to the Convertible Forward example above: a client imports shower curtains from America and she forecasts having to purchase USD 1 million in six months’ time.

The forward rate for six months is 1.0100, the client believes the exchange rate may move up. The client wants to take advantage of possible strength and outperform the spot market. The client decides to take out a Convertible Accelerator Forward with a worse case rate of 0.9825 and a best case rate of 1.0400, slightly lower than that of a standard Convertible Forward. This enables the client to outperform a favorable move in 100% of her exposure up to the best case rate. If the exchange rate of 1.0400 is traded in the spot market at any time during the specified active period, the client will be obligated to buy USD at a rate of 0.9825 if the spot rate is trading above 0.9825 at expiry.

Possible Scenarios: Scenario 1 : AUD/USD weakens to 0.9600. On the settlement date, the client may buy USD1,000,000.00 at the worst case rate of 0.9825. Scenario 2 : AUD/USD strengthens and trades at or above 1.0400 during the active period and at expiry. The client is now obligated to buy USD 1,000,000.00 at 0.9825. Scenario 3 : AUD/USD strengthens and at expiry the exchange rate is 1.0350 at expiry, however, has not traded above 1.0400 during the specified active period of the contract. Since the contract is for a set amount of USD, the Accelerator Credit will be earned in AUD, the base currency. The client will transact at the spot rate of 1.0350 and will achieve an accelerated rate of:

•

•

•

= 1.09341

12

1.0350 0.9825

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Forward Rate1.12

1.10

1.08

1.06

1.04

1.02

1.00

0.98

0.96

0.9

6

0.9

7

0.9

8

0.9

9

1.00

1.01

1.02

1.03

1.04

1.05

1.06

Hedge Rate

Hed

ge R

ate

Spot Rate At Expiry

The advantages are that: The client has certainty of a worst case rate The client outperforms favourable currency moves up to the best case rate• The client pays no premium

The disadvantages are that:• If the best case rate is traded in the spot market at any time during the active period, the rate converts to the worst case rate. In this case, the client would have achieved a more favourable rate using a forward.• If the spot rate at expiry is below the worst case rate, the client would have achieved a more favourable rate using a forward.

••

The Convertible Bonus for importers The Convertible Bonus has all the features

of the Convertible Forward listed above, however, pays a Bonus Rate if the exchange rate moves out of your favour, down to a certain point. The Bonus Rate will be achieved by buying an additional right to purchase the buy currency at the worst case rate. This right will also have a termination condition, where it will cease to exist if the spot rate trades at or below a barrier rate; the Bonus Knock-out. At expiry, if the spot rate is trading below the strike rate, and the spot market has not traded at or below the Bonus Knock-out, the additional right can be sold back in the spot market, earning a Bonus Credit. The Bonus Credit will contribute to the settlement of the structure, allowing you to achieve the Bonus Rate.

If the Bonus Credit is earned in the terms currency, the Bonus Rate achieved is:

Bonus Rate = 2× Strike Rate - Spot Rate

Bonus Rate =

BonusRate =

If the Bonus Credit is earned in the base currency, the Bonus Rate achieved is:

With reference to the Convertible Forward example above: a client imports shower curtains from America and she forecasts having to purchase USD 1 million in six months’ time.

The forward rate for six months is 1.0100 and the client does not have a strong currency view. The client was to take advantage of possible strength or weakness of the AUD. The client decides to take out a Convertible Bonus and accepts a worse case rate of 0.9800. This enables the client to benefit from a favorable move in 100% of her exposure up to the best case rate of 1.0600. It also enables the client to achieve a Bonus Rate down to the Bonus Knock-out rate of 0.9200. If the exchange rate of 1.0600 is traded at in the spot market at any time before the contract matures, the client will be obligated to buy USD at a rate of 0.9800 if the spot rate is trading above 0.9800 at expiry. Likewise, if the spot rate trades at or below 0.9200 at any time before the contract matures, the client will lose the ability to achieve a Bonus Rate. If both barriers are touched within the active period, the contract will convert to a forward contract at the worst case rate of 0.9800.

Possible scenarios:

• Scenario 1 : AUD/USD weakens to 0.9600. On the settlement date, the client may purchase USD 1,000,000.00 and achieve a Bonus Rate. Since the contract is for a set amount of USD, the Bonus Credit is earned in AUD, the base currency.

• Scenario 2 : AUD/USD weakens to 0.9000. The client loses the ability to achieve the bonus rate and the client may buy USD 1,000,000.00 at the worst case rate of 0.9800.

• Scenario 3 : AUD/USD strengthens and trades at or above 1.0600 during the active period and at expiry. The client is now obligated to buy USD 1,000,000.00 at 0.9800.


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• Scenario 4: AUD/USD strengthens and at expiry the exchange rate is 1.0500 at expiry, however, has not traded above 1.0600 during the active period). The client may buy USD in the spot market at expiry for 1.0500.

With reference to the Convertible Forward example above, a client imports shower curtains from America and she forecasts having to purchase USD 1 million in six months’ time.

The forward rate for six months is 1.0100. The client was to take advantage of possible strength in the AUD but does not need an outright worst case rate. The client decides to take out a Convertible Put-Spread and accepts a protection rate of 1.0000, a best case rate of 1.0600 and a reduction rate of 0.9000. This enables the client to benefit from a favorable move in 100% of her exposure up to the best case rate of 1.0600. It also enables the client to have absolute protection down to the reduction rate of 0.9000. If the exchange rate of 1.0600 is traded in the spot market at any time before the contract matures, the client will be obligated to buy USD at a rate of 1.0000 if the spot rate is trading above 1.0000 at expiry. If the spot rate is trading below 0.9000 at expiry, the client will achieve an enhanced rate as described above.

Possible Scenarios:

• The client has certainty of a worst case rate.• The client achieves 100% protection on the exposure.• The client can benefit from favourable currency moves up to the best case rate or down to the Bonus Knock-out rate.• The client pays no premium.

• If the best case rate is traded in the spot market at any time during the specified active period and if a significant bonus credit is also not earned through a fall in the exchange rate below the protection rate at expiry, the client may have achieved a more favourable rate, using the spot market or a forward contract.• If the bonus knock-out rate is traded in the spot market during the specified active period the client may have achieved a more favourable rate using a forward contract.

The advantages are that:

The disadvantages are that:

The Convertible Put Spread for importers The Convertible Put Spread has all the features of the Convertible Forward listed previously, however, rather than an outright worst case rate it achieves a protection rate down to a certain point; the reduction rate. If the spot rate at expiry is below the reduction rate, the client earns the Put Spread. The Put Spread may be earned in the terms currency or base currency and is earned by netting the following; your purchase of the terms currency at the protection rate, less your sale of the terms currency at the reduction rate.

The Put Spread can contribute to the settlement of a spot market trade that will allow you to achieve an Enhanced Rate.

If the Put Spread is earned in the terms currency, the Enhanced Rate achieved is:

Enhanced Rate=Spot Rate at Expiry+Protection Rate-Reduction Rate

If the Put Spread is earned in the base currency, the Enhanced Rate achieved is:

EnhancedRate =

EnhancedRate =

• Scenario 1 : AUD/USD weakens to 0.8500. On the settlement date, the client earns the Put Spread and also buys USD 1,000,000.00 on the spot market. Since the contract is for a set amount of USD, the Put Spread is earned in AUD, the base currency, and the Enhanced Rate achieved is:

0.8500 1.0000 0.9000

= 0.9387

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Forward Rate1.08

1.07

1.05

1.06

1.04

1.03

1.02

1.01

1.00

0.99

0.98

0.96

0.97

0.8

9

0.9

1

0.9

3

0.9

5

0.9

7

0.9

9

1.01

1.03

1.05

1.07

1.09

Hedge Rate

Hed

ge R

ate

Spot Rate At Expiry

• Scenario 2 : AUD/USD weakens to 0.9100. The client may purchase USD 1,000,000.00 at the protection rate of 1.0000.• Scenario 3 : AUD/USD strengthens and is trading at or above 1.0600 at expiry and has traded at 1.0700 during the active period. The client is now obligated to buy USD 1,000,000.00 at 1.0000.• Scenario 4 : AUD/USD strengthens and at expiry the exchange rate is 1.0500, however, has not traded above 1.0600 during the active period. The client may buy USD in the spot market at expiry for 1.0500.


• The client has protection down to the reduction. • The client achieves a rate more favourable than the spot rate if the spot rate at expiry is below the reduction rate.• The client can benefit from favourable currency moves up to the best case rate. • The client pays no premium.


• If the best case rate is traded at in the spot market at any time during the active period, the rate converts to the protection rate. In this case, the client would have achieved a more favourable rate buying in the spot market. • The structure does not provide a worst case rate.• If the spot rate at expiry is below the reduction rate, the client would have achieved a more favourable rate using a forward.

Knock-Out Forward for importers

A Knock-Out Forward locks you into a Forward Contract at a rate more favourable than the prevailing forward rate with an agreed termination clause. The termination clause occurs when the barrier rate is traded in the

spot market during a specified active period; also called a knock-out. If this event occurs, all future rights and obligations under the contract for that specific expiry will cease to exist.

For example, a company imports pistachio nuts and has a requirement to buy USD 200,000 and sell AUD, every month for six months. This client normally enters into forward contracts and the current average forward rate for the next six months is 0.9700, the client would like to outperform this rate. Using a Knock-Out Forward for each month the client can achieve a rate of 1.0000. The barrier rate for the contracts is 0.9200 and is active for one month before each expiry. If the spot rate trades at or below 0.9200 at any time during the active period all rights and obligations for that month only will cease to exist.

Possible scenarios for each month:

• The client achieves a rate higher than the prevailing forward.• The client has protection down to the barrier rate.

• The contract may knock-out, leaving the client un-hedged to buy in the spot market at a rate less favourable than a forward• The client cannot participate in any favourable exchange rate movements above the strike rate

• Scenario 1 : AUD/USD strengthens to 1.04 and does not drop below 0.9200 during the active period. At expiry, the client will buy USD 200,000, selling AUD, at 1.0000 for that month. • Scenario 2 : AUD/USD weakens to 0.9500 but does not drop below 0.9200 during the active period. At expiry the client will buy USD 200,000, selling AUD, at 1.0000 for that month.• Scenario 3 : AUD/USD weakens 0.9000 during the active period. All rights and obligations for that month will knock-out and therefore cease to exist. The client will be unhedged for that month and may purchase at the prevailing spot rate of 0.9000.



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Forward Rate

1.08

1.07

1.06

1.05

1.04

1.03

1.02

1.01

1.00

0.99

0.97

0.98

0.96

0.8

8

0.9

0

0.9

2

0.9

4

0.9

6

0.9

8

1.00

1.02

1.04

1.06

1.08

Notional Amount

Hed

ge R

ate

Spot Rate At Expiry

For example, a client imports electronics and has a requirement to buy USD 500,000, and sell AUD, every month for six months. The client normally uses forwards but would like to outperform the forward rate. The current spot rate is 1.0050, the average forward rate for the next six months is 0.9900 and the client has a worst case rate of 0.9700. Using this strategy the client achieves an enhanced rate of 1.0300 with an upper knock-in barrier of 1.0600 and a lower knock-in barrier of 0.9700.

Possible scenarios for each month:



• Scenario 1 : AUD/USD strengthens to 1.02 but does not trade at or below 0.9700 or at or above 1.0600 during the active period. At expiry, the client will buy USD 500,000 at 1.0300 for that month.• Scenario 2 : AUD/USD weakens to 0.9750 but does not trade at or below 0.9700 or at or above 1.0600 during the active period. At expiry, the client will buy USD 500,000 at 1.0300 for that month.• Scenario 3 : AUD/USD weakens to 0.9000 during the active period. The contract will knock-in to a forward contract at the worst case rate of 0.9700. At expiry, the client will buy USD 500,000 at 0.9700 for that month.• Scenario 4 : AUD/USD strengthens to 1.0800 during the active period. The contract will knock-in to a forward contract at the worst case rate of 0.9700. At expiry, the client will buy USD 500,000 at 0.9700 for that month.

• The client achieves a rate more favourable than the prevailing forward• The client has protection at an enhanced rate down to the lower barrier rate • The client has 100% protection at the worst case rate

• If the contract knocks-in to the worst case rate, the client would have achieved a more favourable rate using a forward.• The client cannot participate in any favourable exchange rate movements above the enhanced rate

The Target Accrual Redemption Forward for importers A Target Accrual Redemption Forward, or TARF, is an outperformance structure that may achieve a strike rate more favourable than the prevailing forward. The TARF is made up of a series of forward expiries with a termination condition on the entire structure. The TARF provides a predetermined amount of protection for expiries where the spot rate is trading below the strike rate. This is called the target and will be priced as a number of cents or basis points. The target will be calculated on expiry, determined by a specific reference rate. If the spot rate at expiry is above the strike rate, the client will buy at the strike

The Enhanced Range Forward for importersThe Enhanced Range Forward is an outperformance trade that allows the client to achieve an enhanced rate, more favourable than the prevailing forward prevailing forward rate, although subject toknock-in conditions that may obligate the client toa worst case rate. A knock-in event will occur if the exchange rate trades at or above an upper barrier, or, at or below a lower barrier, during the active period. If either barrier event occurs, the contract contract becomes a forward at the worst case rate.

Forward Rate1.10

1.08

1.06

1.04

1.02

1.00

0.98

0.96

0.94

0.92

0.90

0.9

0

0.9

2

0.9

4

0.9

6

0.9

8

1.00

1.02

1.04

1.06

1.08

1.10

Notional Amount

Unhedged

Hed

ge R

ate

Spot Rate At Expiry

Forward1.05

1.04

1.03

1.02

1.01

1.00

0.99

0.98

0.97

0.96

0.95

0.9

4

0.9

6

0.9

8

1.00

1.02

1.04

1.06

1.08

1.10

Notional Amount

Hed

ge R

ate

Spot Rate At Expiry

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rate, and nothing will be accrued towards the target (termination conditions permitting). However, for each expiry where the spot rate is below the strike rate, the client will buy at the strike rate and the di�erence between the strike rate and the spot rate at expiry will be accrued towards the target. Once the target has been accrued, the contract is terminated, and all future rights and obligations under the contract will cease to exist. The expiry where the target is accrued will become the final expiry and the amount bought will be determined on a pro rata basis. This pro rata amount is equal to the remaining target before the expiry, divided by the di�erence between the strike rate and the spot rate at expiry, multiplied by the notional amount covered for that expiry.

For example, a company imports clothing from China and has a requirement of USD 500,000 per month. The current average forward rate for the next 6 months is 0.9600 and the client would like to outperform this forward rate, a worst case rate is not important. Using a TARF contract he can achieve a strike rate of 0.9900 with a 10 cent accrual target.

Possible scenarios for the length of the contract:

• Scenario 1 : AUD/USD strengthens to 1.0200 and is not below 0.9900 on any expiry date for the six months. At each expiry, the client will buy USD 500,000, selling AUD, at 0.9900. None of the target will be accrued.• Scenario 2 : AUD/USD weakens to 0.9700 in month one, 0.9400 in month two, and then strengthens above 0.9900 for the remainder of the expiries. In the first month, the client will buy USD 500,000 at 0.9900 and accrue 2 cents towards the target, 8 cents of protection remains for the next month. In the second month, the client will again buy USD 500,000 at 0.9900 and accrue 5 cents towards the target, 3 cents of protection now remains. For the remaining expiries where the spot rate at expiry is above the strike rate, the client will buy USD 500,000 at 0.9900.

• Scenario 3 : AUD/USD weakens and is 0.9300 for the first expiry, 0.9600 for the second and third expiries. For the first month, the client will buy USD 500,000 at 0.9900; 6 cents will be accrued towards the target. On the second month, the client will buy USD 500,000 at 0.9900 and accrue 3 cents towards the target. On the third month the remaining target is 1 cent, however the di�erence between the spot rate and strike rate is 3 cents. The remaining expiries will be terminated and the third month will be pro rata. For the third expiry the client will buy, USD 166,666.67 at 0.9900. [0.01 / (0.99 – 0.96)] x USD 500,000 = USD 166,666.67). The client will now be unhedged for the remainder of the months.



• The client achieves a strike rate higher than the prevailing forward • The client has protection until the target is accrued

• The contract may terminate early leaving the client unhedged

• The client cannot participate in favourable

exchange rate movements above the strike rate

The Daily Accumulator for exporters

The Daily Accumulator is an outperformance trade that may achieve a strike rate more favourable than the prevailing forward. The Daily Accumulator is made up of a series of forward expiries that accumulate up to a notional amount based on certain conditions. The notional amount for each expiry is accumulated through daily fixings that occur each business day over an agreed accrual period. The daily fixing will use a specific reference rate to determine the daily accrual amount. The daily accrual amount, or a proportion of, will be accrued towards the forward settlement depending on barrier conditions.


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A Daily Accumulator will generally have a lower and upper barrier that will determine what proportion of the daily accrual amount is accrued on a fixing. For an exporter, if, at the fixing time on a fixing day, the exchange rate is above the upper barrier, nothing will be accrued towards settlement. If the exchange rate is between the lower and upper barriers, the daily accrual amount is accrued for that fixing. If the exchange rate is below the lower barrier, an agreed multiplier of the daily accrual amount will be accrued for that fixing. The total amount accrued will be settled on settlement date to the value of the accrued amount at the strike rate.

AUD/USD: AUD/USD weakens and is below 0.9600 for all 22 fixings.

On each fixing, double the daily accrual amount, USD 45,454.54, will be accrued towards the forward settlement. Double the notional amount, USD 1,000,000 at the strike rate of 0.9600, will be settled at expiry.

AUD/USD: AUD/USD trades in a range above 0.9600, but below 1.0300 for all 22 fixings.

On each fixing, the daily accrual amount, USD 22,727.27, will be accrued towards the forward settlement. The notional amount, USD 500,000 at the strike rate of 0.9600, will be settled at expiry.

AUD/USD : AUD/USD weakens and is below 0.9600 for 10 fixings, then strengthens and trades within the range of 0.9600 and 1.0300 for the remaining 12 fixings.

For the first 10 fixings, double the daily accrual amount, USD 45,454.54, will be accrued towards the forward settlement. A total of USD 454,545.40 will be accrued towards settlement from these fixings. For the next 12 fixings, the daily accrual amount, USD 22,727.27, will be accrued towards the forward settlement. A total of USD 272,727.24 will be accrued towards settlement from these fixings. The total amount accrued for this month’s expiry will therefore be USD 727,272.64, at the strike rate of 0.9600, to be settled on the settlement date.


• The client achieves a strike rate more favourable than the prevailing forward• The client is protected up to the upper barrier rate• Barrier conditions apply for each rather than a whole expiry• Contract will not terminate before expiry


• The client does not know the settlement amount until expiry• The client cannot participate in favourable exchange rate movements below the strike rate• The contract does not provide a worst case rate • The client may become unhedged if the market moves unfavourably

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For example, a company repatriates up to USD

1,000,000 of earnings to Australia from its U.S. subsidiary every month. The client does not have an urgent need for funds and simply wants to achieve the most favourable rate he can. The current average forward rate for the next 6 months is 0.9800 and the client would like to outperform this forward rate, a worst case rate is not important. Using a Daily Accumulator with a notional amount of USD 500,000, he can achieve a strike rate of 0.9600. The upper barrier will be set at 1.0300 and the lower barrier at 0.9600. The accrual period will begin one month before each expiry. If the exchange rate on a fixing is above 1.0300 nothing will be accrued for that fixing. If the exchange rate on a fixing is between 1.0300 and 0.9600 the daily accrual amount will be accrued for that fixing. If the exchange rate on a fixing is below 0.9600 double the daily accrual amount will be accrued for that fixing.

Illustrative examples for one expiry:

In the first accrual period, the month prior to expiry, there are 22 business days. Therefore the daily accrual amount is USD 22,727.27.

AUD/USD strengthens and is higher than 1.0300 for all 22 fixings.

On each fixing, nothing will be accrued towards the forward settlement. The client will be unhedged for this expiry and will have to purchase AUD on the spot market if required.

Margin amounts for Forward and Option Contracts We may require you to pay a deposit (typically between 3% to 20%) before entering into the transaction.

We may also, in our sole discretion, require payment of a margin amount from you at any time during the term of a Forward Contract or Option Contract prior to its maturity. Any margin amount required by us will need to be paid by you before the expiry of the second business day after our request. Failure to do so will constitute a default of the terms of the contract and you will be liable for any costs associated with the closure of your contract. This may include the forced liquidation of your position as well as additional losses which can include your initial deposit and previous margin payments.

We would typically require further margin amounts if there was an adverse movement in the relevant currency pair. Margin call amounts will vary depending on, but not limited to, notional value, currency pair and market volatility.

8.Significant benefits of our products Our products provide important risk management tools for those who manage financial market exposures. World First o�ers its clients the ability to buy and sell foreign currency using Spot Contracts, Forward Contracts or Option Contracts. This enables clients to protect themselves against adverse market swings. The significant benefits of using products o�ered by World First as a risk management tool are to protect your existing portfolios or exchange rate and provide cash flow certainty.

In addition to the benefits set out in the sections of this PDS dealing with specific products the following benefits may also be applicable:

Manage VolatilityWorld First o�ers clients a way of managing volatility that enables clients to protect themselves against adverse market movements yet secure enhanced market rates when o�ered. Clients, in normal market conditions, can minimise downside risk by the use of “stop loss” orders. In addition, clients may also use limit orders which allow them the opportunity to benefit from favourable upside market movements.

Provide Cash Flow CertaintyBy agreeing a rate of exchange now for a time in the future you will determine the exact cost of that currency, thereby giving certainty over the flow of funds.

Tailored and FlexibleA major benefit of entering into a foreign exchange contract is that you can tailor the transaction to meet your specific circumstances. Unlike exchange traded products, our contracts are not standardised and can be personally tailored to suit your requirements. For example, World First allows you to enter into transactions in small amounts and the settlement date is negotiable, whereas exchange traded products are a standard size and cannot be varied in duration.

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Potential to profit in both rising and falling marketsAs the financial market is constantly moving, there are always trading opportunities, whether a currency is strengthening or weakening in relation to another currency. There is the potential for profit and loss in both rising and falling markets depending on the strategy you employ.

High Level of LiquidityThe foreign exchange market is very liquid enabling World First to efficiently manage its risks by entering into transactions with its hedging counterparties. The liquidity comes mainly from large and smaller banks that provide liquidity to investors, companies, institutions and other currency market players.

Real time quotesWorld First uses sophisticated technology and/or liquidity providers (counterparties) in order to o�er you up-to-the-minute quotes. You may check your account and positions in real time and you may do so 24 hours a day and trade based on real-time information.

9. Significant risks explainedYou should be aware that trading in the foreign exchange products o�ered by World First involves risks. It is important that you carefully consider whether trading our products is appropriate for you in light of your investment objectives, financial situation and needs.

Financial margin based products carry a high degree of risk. Any transaction is exposed to, among other things, changes in a country’s political condition, economic climate, acts of nature and so on, all of which may substantially a�ect the price or availability of a given instrument.

World First recommends that you do not risk money that you are not in a position to lose and that you adopt a philosophy of capital preservation and implement risk mitigation techniques (such as the use of stop loss orders).

In addition to the risks set out in the sections of this PDS dealing with specific products the following risks may also be applicable:

LeverageDeposit Margin Leverage versus Leveraged Option Contracts.

There are two di�erent types of leverage that apply to foreign exchange contracts in this PDS. The deposit margin on Forward Contracts is leveraged as the margin you pay is only a small fraction of the total value of the contract. You are therefore exposed to underlying price movement equivalent to the total contract value without outlaying the full contract amount. A leveraged contract of this nature will move in and out of the money more quickly than the initial outlay would suggest. This significantly magnifies both potential benefit and losses.

The other type of leverage occurs in Leveraged Option Contracts. Leverage, by this definition, refers to an option structure where the potential obligation is of greater notional value than that of the right you

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hold. Therefore, you may be obligated to buy, or sell, a larger amount than you have a right to buy, or sell. These contracts will move further and faster out of the money from the same adverse movement than their non leveraged equivalent.

A contract may simultaneously involve both types of leverage described. In such cases, leverage ratios multiply together which increases risks and can magnify losses.

Market VolatilityMarkets are subject to many influences which may result in rapid fluctuations and reflect unforeseen events or changes in conditions with the inevitable consequence being market volatility.

Given the potential levels of volatility in the financial markets, it is therefore recommended that you closely monitor your positions with World First at all times.

In certain market conditions such as during extreme price volatility in markets, quotes provided by World First may ‘gap’. A gap means that a price may unexpectedly jump from one price level to another without trading at rates in between those two price levels or quotes. It is not possible for us to predict when a price ‘gap’ will occur or by how much. Price gaps are generally a result of unexpected news or previously unknown data being released (e.g. news of terrorist attacks, revaluation of a currency, geopolitical upheaval or natural disasters). In such an event World First reserves the right to make cash adjustments where there have been losses incurred by us as a result of an order you have active on the trading platform.

Counterparty RiskGiven you are dealing with us as a counterparty to every transaction, you will have an exposure to us in relation to each transaction. In all cases, you are reliant on our ability to meet our obligations to you under the terms of each transaction. This risk is sometimes described as counterparty risk.

We may choose to limit our exposure to our clients by entering into opposite transactions as principal in the wholesale market.

You are also subject to our credit risk. If our business becomes insolvent we may be unable to meet our obligations to you. In addition, World First must comply with the financial requirements imposed under our AFSL.

In the event of insolvency of World First, you will be an unsecured creditor to the extent that you have a claim against us for amounts you have already paid under an existing contract that has not been settled. The extent to which you may recover your proportional entitlement will be determined by applicable insolvency laws subject to any contractual arrangements you have with us (e.g. the set-o� and netting rights of World First against client money, under our terms and conditions).

However, we may agree at times for you to place money in our designated client money account, say, if you anticipate making trades in the future but have not nominated the funds for a particular trade or trades. In this situation, the funds are segregated from our own funds and property.

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This means that they are not available to pay general creditors in the event of receivership or liquidation by World First. However, in that situation, by paying us money in this way, you authorise us to retain any interest on that money, and to use that money (including to deduct reasonable fees) in any way agreed to as set out in this PDS, the terms and conditions, or as otherwise agreed with you.

Obligation to Actively Monitor Your TransactionsYou are responsible for actively monitoring and managing your transactions at all times and meeting your obligations

Opportunity CostOnce you have entered into a foreign exchange transaction you will have locked in the rate for your chosen currency pair and you will not be able to take advantage of subsequent favourable exchange rate movements should that occur, in relation to your existing position. On the other hand, you will be protected from any adverse movements. You may still enter into other transactions at a more favourable rate provided you are able to continue to meet your obligations to us.

If you buy an Option Contract, the underlying movement in currency rates may not be enough to cover the cost of your option i.e. the premium.

Basis RiskThe terms of a particular transaction may not be a perfect hedge against a particular type of risk or exposure where you are using a margin based product as a risk management tool. Even small di�erences

between the terms of the transaction and the underlying asset, liability or position to which the transaction relates may create a basis risk.

System RisksWorld First relies on a number of technology solutions to provide you with its services. World First ensures the systems are regularly updated and maintained.

A disruption to the World First trading systems may mean you are unable to trade in products o�ered by World First when you wish and you may su�er a financial loss or opportunity loss as a result.

Transactions are not TransferableAs each transaction you enter into with us is a transaction between you and World First and is not traded on an exchange or market, you will not be able to sell, transfer or assign the transaction to any other person.

Abnormal Market Conditions or Force MajeureWorld First reserves the right to close out some or all of your open transactions between you and World First if an event occurs that is beyond your or our control, where such event either wholly or partially prevents, hinders, obstructs, delays or interferes with your ability to meet your obligations under the Client Agreement.

Discretionary Powers of World FirstUnder our terms and conditions, we have a number of discretionary powers which may a�ect your trading activities. We refer you to the terms and conditions which sets out these powers and you should fully understand them.

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Out of the Money Option ContractsThis is a term used to describe an Option Contract that cannot, at current prices, be exercised at a profit. An out-of-the-money option is a call option whose strike price is higher than the current market level or a put option whose strike price is below the current market level.

A client contemplating purchasing a deep out-of-the-money Option Contract should be aware that the chance of such an option becoming profitable is generally remote.

10.How we are paidFor all transactions, we earn income on the margin between the wholesale cost of currency, and the cost at which we o er the currency to you. The margin that is charged is determined according to a complex calculation, taking into account the availability of the currency you are buying or selling, market volatility, the pre-agreed settlement date and the value of the transaction.

For Option Contracts we may also charge you a premium.

Please review our current Financial Services Guide for more information about how we are remunerated. You can request a copy of this document free of charge by contacting us using the details at the beginning of this PDS.

We also receive some fees, which are explained below.

11.Costs of the productsFor transactions under AUD 10,000 we may charge you a transfer fee, for example AUD 15 or similar, which is payable when you enter into the relevant transaction with us.

There is also a margin (described above) which is built in to the cost of the currency which we quote to you. It is not in addition to the quoted price. The margin that is charged generally ranges between 0.1% and 4% per transaction. The size of the margin will depend on the current interest rates, the availability of the currency you are buying or selling, market volatility, our relationship with you and the value of the transaction.

Other banks that receive your funds or act as an intermediary may charge you fees which are often unknown or out of the control of World First.

12.Terms and ConditionsOur terms and conditions are provided to you at the beginning of the registration process and must be read and signed before a contract is entered into.

In addition to the terms set out in this PDS, when you use our services you will be bound to World First’s terms and conditions as amended from time to time.

World First may choose to provide you with general advice. For example, this PDS may include some general advice. That means that, unless stated otherwise, we do not take into account your financial objectives, financial situation or needs, and you will need to decide yourself whether the product is appropriate for you.

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You should read this document in detail to help you form that decision. In the event that you do receive personal advice that does take into account your objectives, financial situation and needs, then you will receive a separate Statement of Advice (SOA).

There is no cooling o� period for any product o�ered by World First. Should you change your mind after entering into a transaction with World First you should close out your position by taking an opposite transaction.

World First is not liable for any loss that arises from incorrect identification information being provided by you or from any quoting errors in a currency rate quotation.

You will be required to indemnify World First for any loss that occurs as a result of World First acting in good faith on your verbal or written instructions.

You must provide all information to us which we reasonably require of you to comply with any law in Australia or any other country. In particular, you must provide adequate identification before you can use our products or services.

World First may delay, block or refuse to enter, adjust or complete a transaction if World First believes on reasonable grounds that making the payment may breach any law in Australia or any other country, and World First will incur no liability if it does so.

World First may disclose any information that you provide to the relevant authority where required by any law in Australia or any other country.

Unless you have disclosed to World First that you are acting in trustee capacity or on behalf of another party, you warrant that you are acting on your own behalf when purchasing this product from World First.

When you use our services, you are promising that you will not breach any law in Australia or any other country.

We accept payment from you via electronic transfer, or cheque. We reserve the right to refuse cheques. We do not accept cash. Money is considered to be “received” by us when it has cleared in one of our designated accounts.

13.Providing instructions by telephoneWhen providing instructions by telephone, you will need to provide World First with adequate identification information.

14.How we handle your moneyWe will notify you of a number of nominated bank accounts where you should transfer your money. Those accounts are owned by World First, but used solely as segregated client accounts, separate to the company’s own operating accounts. We have processes in place to govern how that money is handled.

Any money you pay us when you purchase one of the products described in this PDS becomes our money at the time of payment, and we have a corresponding obligation to you under the relevant contract to make the payment or provide the option, depending on the arrangement.

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15.Stopping or cancelling a paymentWe reserve the right to cancel any contract immediately in circumstances set out in our terms and conditions. Those circumstances include (but are not limited to) your insolvency, non-payment or late payment, or for a breach by you of our terms and conditions.

We may, in our discretion, agree to a request from you to cancel or alter any exchange contract you have entered into with World First. If, at your request, World First cancels or alters your contract you will have to pay to World First a cancellation fee (of up to 0.05% per day of the sale currency amount until the closing out of the order), an administration fee (of up to $100) and any costs and/or exchange rate losses that are incurred by World First.

16.Tax implicationsUsing foreign exchange contracts can create tax implications.

Generally, if you make a gain attributable to an exchange rate or price fluctuation then that part of the gain is included in your assessable income. Conversely, if you make a loss attributable to an exchange rate or price fluctuation then that part of the loss is deducted from your assessable income.

However, the taxation laws are complex and vary depending on your personal circumstance and the purpose of your currency trading. You should discuss any taxation questions you may have with your tax adviser before using our products or services.

17.What are our di�erent roles?World First is the product issuer. This means that we provide the facility you use to transfer money, and do not act on behalf of anyone else.

World First is also the service provider. Our representatives can give you general or personal advice and help you use the money transfer service. This role is undertaken on behalf of the product issuer.

18.Would you like more information? You can find out more about this product by contacting us using the details at the beginning of this PDS. You can also look at our website for more information.

19.What should you do if you have a complaint?We have procedures in place for dealing with complaints promptly. In the event you have a complaint about the service provided, you can:

a. Contact your World First representative and discuss your complaint.

b. If your complaint is not satisfactorily resolved within 2 weeks, please contact by telephone or in writing:

Andrew Porter Managing Director World First Pty Ltd See the beginning of this PDS for contact details.

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c. If the complaint cannot be resolved to your satisfaction you have the right to refer the matter to the Financial Ombudsman Service (FOS) which is an external dispute resolution scheme, of which World First is a member.

You can contact the FOS at

GPO Box 3, Melbourne, VIC 3001, Australia. Phone: 1300 78 08 08 Fax: (03) 9613 6399Email: [email protected]: www.fos.org.au

d. The Australian Securities and Investments Commission (ASIC) also has an Infoline phone (1300 300 630) which you may call to obtain information about your rights.

20. Protection of personal information

World First collects personal information about you so that it can provide the products described in this PDS to you, and so that it can operate its business.

Also, some laws require us to collect and hold personal information. These requirements include (but are not limited to) requirements set out in the Corporations Act 2001 and associated regulations, and the Anti-Money Laundering & Counter Terrorism Financing Act 2006 and associated rules.

World First does not disclose any non-public personal or financial information about its customers to third parties, except as permitted by law and as necessary in processing and conducting the transaction you have requested and authorised. Third parties that we may need to disclose

your information to in order to meet these purposes include banks, compliance consultants and government bodies.

You can access any personal information that we have about you, upon request. If you don’t provide information to us that we request, we may be unable to provide or continue providing, services to you. You can contact us using the details at the beginning of this PDS to request a free copy of our full Privacy Policy.

21. Glossary

Active Period The time period within which a barrier event can occur for an option contract. The active period is defined by the barrier start date and barrier end date. If no active period is defined, the active period is assumed to be from trade date to expiration date.

AFSL Australian Financial Services Licence.

AUD Australian dollars

Barrier Rate An exchange rate that determines the occurrence of a barrier event for an option. A barrier event may occur if the spot rate trades either at and above, or, at and below a barrier rate. An option contract may have an upper barrier or lower barrier or both.

Barrier Event A change in the option structure that arises from a barrier rate condition being fulfilled.

Best Case Rate The most favourable exchange rate that an option contract can achieve.

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Call An option contract giving the owner the right, but not the obligation, to buy a specified amount of currency at a specified exchange rate at a specified time. This is the opposite of a put option, which gives the holder the right to sell currency.

Base Currency The currency being priced in terms of the other and the first currency quoted in a currency pair. For example, in this pair AUD/USD, the AUD is the base currency.

Expiration Date The last day that an option contract is valid. When an investor buys an option, the contract gives them the right but not the obligation to buy or sell currency at a predetermined price on a predetermined date. If the investor chooses not to exercise that right, the option expires and becomes worthless. The expiration date is generally two business days before the settlement date.

Expiration Time The specified time that an option expires.

Expiry The expiration date and expiration time of an option contract.

Foreign Exchange Rate This is the price at which one currency can be bought or sold in exchange for another currency.

GBP Great British Pounds

Knock-in A barrier event that results in a new right and/or obligation existing.

Knock-out A barrier event that results in existing rights and/or obligations terminating.

Margin Amount An amount of money, also known as a margin call, that we may require from you if you have an open foreign exchange transaction and we consider that your position is exposing us to risk. For example, if your contract requires you to trade at a rate that is 10 per cent less favourable than the prevailing spot rate, we may ask you to pay a margin amount.

PDS Product Disclosure Statement

Premium An up-front payment paid for an option contract. A premium may be paid by the buyer of an option and received by a seller of an option.

Put An option contract giving the owner the right, but not the obligation, to sell a specified amount of currency at a specified exchange rate at a specified time. This is the opposite of a call option, which gives the holder the right to buy currency.

Reference Rate The rate that determines the pay-o�s of option contracts. The reference rate will specify the time, trading session and calculation method of an exchange rate.

Representative Includes a director or employee of World First, and a director or employee any company related to World First.

Settlement Date This is the date that World First instructs a payment from a bank account to the client’s nominated bank account, and the date that cleared funds should be received by World First from clients.

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Spot Market The global spot foreign exchange market, which for the purposes, shall, unless otherwise agreed, be treated as being open continuously, in any week, from 18:00 GMT on Sunday until 01:00 GMT Saturday.

Spot Rate The spot currency exchange rate for the Currency Pair prevailing at any time in the Spot Market.

Strike Rate The exchange rate at which an option contract can be exercised. For call options, the strike rate is where currency can be bought, while for put options the strike rate is the exchange rate at which currency can be sold.

Terms Currency The pricing currency and second currency quoted in a currency pair. For example, in the quote AUD/USD, the USD is the terms currency.

USD United States Dollars.

Worst Case Rate The least favourable exchange rate that an option contract is said to guarantee; also referred to as the Hedge Rate.

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