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Managing Financial Risks

 

Access hedging products in

larger volumes, at longer maturities, and at lower cost without collateral requirements or the need to use public sector credit lines with commercial institutions.

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March 12, 2012:
IBRD Offers Borrowers of Loans with a Variable Spread Additional Flexibility to Manage Financial Risks

World Bank Helps Morocco Mitigate Currency Risk on Liabilities Owed to a Third Party

 

 

 

IBRD's stand-alone hedging products for risk management are available to help clients manage their financial risks. Using standard risk management techniques, these products can transform the risk characteristics of a borrower’s IBRD obligations without changing the terms negotiated in the loan agreements.

IBRD also offers interest rate and currency swaps in relation to borrowers’ non-IBRD debt. Clients eligible to use these products are sovereigns that have an existing portfolio of IBRD loans, are in good standing with respect to debt service obligations to the Bank, and are eligible for new IBRD loans.

Currency conversions and swaps

Alter the currency terms of a loan obligation if risk management requirements have changed since the initial choice of loan currency. To access built-in conversion options simply request the desired type and terms of the conversion. For IBRD loans without embedded options or debt owed to creditors other than IBRD, access swaps by signing a Master Derivatives Agreement with IBRD. Availability of currency hedging products presupposes a sufficiently liquid swap market in the desired currency.

Interest rate conversions and swaps

Transform the interest rate basis of a loan obligation from a fixed to floating rate or vice versa. To access built-in conversion options simply request the desired type and terms of the conversion. For IBRD loans without embedded options or debt owed to creditors other than IBRD, access swaps by signing a Master Derivatives Agreement with IBRD.

Interest rate caps and collars

Limit interest rate variability with a cap or a collar. Caps set an upper limit on the variable interest rate of the loan. Collars set an upper limit (a cap) and a lower limit (a floor) on the interest rate of the loan. Both require payment of an up-front premium to purchase the interest rate protection. For IBRD loans without embedded options or for debt owed to creditors other than IBRD, access caps and collars by signing a Master Derivatives Agreement with IBRD.

Commodity swaps
Link IBRD debt service payments to the prices of a particular commodity or commodities in order to reduce commodity price risk. One set of cash flows is linked to the market price of a commodity or index. The other is a fixed cash flow or a cash flow based on a variable rate of interest. In this way, a commodity swap is a hybrid, spanning interest rate swap and commodity swap markets. IBRD commodity swaps are individually negotiated transactions provided on a case-by-case basis.

 

Did you know?
Are you looking to manage risk on an IBRD Flexible Loan? Currency and interest rate conversions are the embedded risk management tools available within the IBRD Flexible Loan. Learn more.