Initiating a Contract

Contract initiation starts with a quote request via MFX's web site or by phone. The request must include the specifics of the microfinance loan to be hedged - notional amount, the related foreign currency, the term and the payment provisions. MFX can only initiate contracts that are intended to hedge the risk of microfinance lending, either a new loan or an existing microfinance loan portfolio. For MIVs or MFIs who want to fully hedge an existing exposure, the notional amount on the hedging contract should match the notional principle amount and interest payments remaining on the loan at the inception of the swap or forward.

Pricing on a currency hedge is market driven and the terms of a hedge will vary from day to day based on a variety of factors related to the capital markets, and the terms and maturity of the desired hedge contract. MFX will respond with a preliminary price quote on a swap or forward within five days of receiving a request.

If the price quote is accepted, MFX will confirm the quote within a maximum of 20 days but generally much sooner. (The time is dependent on MFX's confirming the terms of its own matching contract with TCX or a bank.) Confirmations of the hedging terms are then completed and signed off by MFX and the client.

The client then has the option to execute the contract at any time to coincide with its loan closing or other factors. The basic terms of the hedging contract remain valid for 6 months (though underlying rates in the contract will move with the market).