THE Bank of Nova Scotia Jamaica (BNSJ) Limited has decided to expand its derivative products to include foreign exchange (FX) forward contracts which will allow its corporate and commercial customers to hedge against the volatility in FX rates.

A derivative is a financial contract between two or more parties which derives its value from the underlying asset. A FX forward contract allows the purchasing party to secure an exchange rate for a fixed amount to be paid for in the future. An example can be a construction business which purchases steel from Turkey. While the firm won’t need the steel until the end of the year, the depreciation of the Jamaican dollar against the United States dollar (USD) would result in additional costs to the firm and their overall profit from a project. Instead of just stocking up USD from the start of the year and decreasing cash resources, the firm would pay the bank for a rate of $150 – 1 for US$50,000. The USD-JMD rate closed 2021 at $155.08 which means the firm would save J$254,000 through the use of the forward contract.

https://www.jamaicaobserver.com/business-observer/more-banks-offering-fx-forwards-and-derivatives_246918