Why do clients need to manage their currency risk?
Borrowing in foreign currencies exposes clients to the risk that debt and debt service payments (as measured in local currency) increase when their local currency depreciates. By converting to local currency, clients address that risk.
How does the World Bank help clients manage currency risks?
The World Bank can convert disbursed amounts to local currency. The amount clients owe in local currency upon conversion is the amount they will have to repay. The interest rate in local currency will typically be fixed.
What is the cost of converting to local currency?
The World Bank charges a 0.06 percent per annum transaction fee. More importantly, the interest rate in local currency reflects the terms the World Bank can obtain when hedging the currency risk. Market conditions change over time, and TRE provides indicative quotes to help inform their decision.
Which currencies and maturities are available?
Market conditions vary over time and across maturities. Well developed markets like the South African Rand or Mexican Peso may offer 30-year maturities for large amounts. Some currencies are only available 5-10-year maturities. 25 client currencies are currently considered sufficiently liquid.
Learn more: IBRD Local Currency Financing Product Note