EAKO User Guide

www.eakocapital.com

This User Guide introduces a number of commonly traded FX structured forwards, with graphical representations provided to aid the reader. Derivative Payoff Profile maps the payoff of the strategy to changes in the underlying asset. Net Exposure Profile reports the net profit of the strategy when combined with the underlying exposure.

Derivative Payoff Profile

As the underlying currency pair (e.g., EURUSD) moves from left to right along the x-axis, this diagram reports the payoff of the strategy as being either:

• A positive profit value if above the x-axis.

• A negative loss value if below the x-axis.

• Neither a profit, nor a loss if on the x-axis.

Payoff Diagram:

Net Exposure Profile

Maps the derivative to the underlying exposure.

As the underlying currency pair (e.g., EURUSD) moves from left to right along the x-axis, an unhedged position would see its exposure moving up the y-axis in a one-for-one relationship. This is represented by the 45 degree upward sloping line, labelled "Exposure = Spot".

In contrast, a FX Forward fixed at-the-market-forward (ATMF) rate would report the same single rate on the y-axis for all movements in the underlying rate. This is represented by the dotted horizontal line labelled "Exposure = Forward".

Payoff Diagram:

The following diagram combines the Profit Payoff Profile of the above Knock-In Forward with that of the underlying Spot position.