Risk Management Options
Sovereign borrowers can choose from a menu of embedded options offered by the FFF to manage interest rate and currency risk exposures of IDB loans. The FFF also offers stand alone hedges to transform risk characteristics of IDB obligations. These financial solutions address borrowers’ changing needs during the life of IDB loans.
Transaction fees (PDF) are applicable for embedded risk management options and for stand alone hedges with the IDB.
FFF loans carry a variable interest rate based on 3-month USD-LIBOR plus the IDB lending spread. Borrowers can change the interest rate basis of the loan—from LIBOR-based to fixed or vice versa—at any time during the life of the loan. The interest rate basis can be converted but the IDB lending spread remains variable.
In addition to fixing or unfixing the interest rate, borrowers can choose to limit the interest rate volatility by buying an interest rate cap or collar. Maturities for interest rate conversions, caps or collars depend on market availability.
The cost of interest rate conversions, interest rate caps and collars is on a pass-through basis plus applicable lending margin and fees. Please refer to Interest Rates and Charges.
Through built-in options in FFF loans, borrowers have the ability to manage currency exposures by transforming US dollar or Local Currency (LC) denominated loans into other major currencies or other regional LCs. These options are available at any time during the life of a loan, on a partial amount or on the full outstanding loan balance.
Currency conversions are subject to market availability and pricing is on a pass-through basis plus applicable lending margin and fees. Please refer to Interest Rates and Charges.
FFF Currency Options (PDF)
Using standard market techniques, borrowers have the option to manage interest rate, currency and other types of exposures through direct hedges with the IDB throughout the life of IDB loans. Hedges are offered against outstanding loan balances (OLBs) on a loan or loan portfolio basis. To access hedging products, an ISDA Master Derivatives Agreement (MDA) must be signed with the Bank.