Derivative products are products of which the return is based on the return performance of an underlying asset (such as security, foreign currency, interest) and which is derived from the return of the underlying asset.

The most important feature in derivative products is that “maturity” concept is included in transactions. In other terms, with derivative transactions, an agreement is made today for a transaction that will be conducted in the future. Derivative products can be used by investors who want to avoid possible market fluctuations in the future and who aim to generate additional return with these fluctuations by taking a certain amount of risk.

Forward, Option, Swap are the main derivative products.

Forward (forward buying/selling transaction) refers to the agreements related to buying or selling specific amount of foreign currency, precious metal in a forward maturity from a price that is defined today. In the forward agreements, both parties have the liability to conduct transaction in terms of the price and amount defined in the agreement, irrespective of the spot rate of the asset subject to transaction in the maturity.

Forward transactions are products that can be used for protection against the negative effects of fluctuations in the asset prices and for generating return from these fluctuations.

Options are agreements which give a certain amount of assets, economic or financial indicator, money or capital market instrument, commodity or foreign currency, the right to buy or sell from a certain price, all of which form a base for the option, to option buyer in exchange of Premium but do not oblige the buyer, but oblige the option seller to sell in case the buyer requests as such in certain maturity (Europe type option) or up to a certain maturity (American type option). With this structure, the options can be compared to an insurance transaction by the party that buys the right by paying premiums.

There are mainly 2 option types;

  • Call Option: Call option is a type of option agreement which gives the party buying the option agreement the right to buy a certain quantity of the asset, which is written in the agreement, at a certain time or up to a certain time for a defined price.
  • Put Option: Put option is a type of option agreement which gives the party buying the option agreement the right to sell a certain amount of the asset, which is written in the agreement, at a certain time or up to a certain time for a defined price.

When these explanations are taken into consideration, it is seen that;

  • There is a “RIGHT” for the Option Buyer,
  • There is an “OBLIGATION” for the Option Seller.

In other words, the party buying the option can conduct the transaction if the result of the transaction subject to option is in his/her favor, the party selling the option will be obliged to conduct the transaction at the will of the party buying the option, regardless of the transaction result.

The option agreements can be almost unlimitedly structured as long as the parties come to an understanding. With these features, options;

  • can be produced by using various underlying assets such as foreign currency, equity, index, gold, Eurobond, interest,
  • can be used for protection purposes by customers, who want to avoid risks such as exchange risk, market risk, interest risk, by establishing various conditions in line with the customers’ requests.
  • allows the customers, who have certain forecasts about exchange, equity prices, commodity prices and interest rates, to gain additional return.
  • provides the opportunity to generate return from changes in various markets without directly investing in the markets,
  • can be formed with various maturity options starting from 1 day.
  • With vanilla, exotic option strategies or option strategies formed by using a combination of these strategies, provide the opportunity of various risk/return structures meeting different expectations and needs,
  • allows the customers to control and generate return from a larger amount of asset with a smaller investment amount.

“Swap” is an English word meaning “interchange, exchange” in Turkish. In the financial markets, swap is the exchange of foreign currency, interest or securities or their cash flows, in other words their payment commitments, at the end of specific period or during a specific period.

Swap transactions can be conducted by trading many assets such as foreign currency, precious metal, interest, equity and bill/bond. The main swap transactions are listed as below.

  • FX (Foreign Exchange) Swap

They are agreements of forward transactions which are made for exchanging a currency with another currency and repayment of the exchanged principals at the end of a specific period. In FX swap transactions, the amount exchanged in the beginning of the transaction is repaid on the maturity date which is defined in the agreement in terms of the amount calculated with exchange/parity which is again defined in the agreement. In other words FX swap is formed as a combination of spot FX transaction conducted on the date of agreement and forward transaction in the opposite direction of the initial transaction which was agreed to be conducted on the maturity date. (If the initial transaction is buying spot, a forward sales agreement is made on the maturity date, if the initial transaction is selling spot, a forward purchase agreement is made on the maturity date.)

  • IRS (Interest Rate) Swap

It refers to the transactions in which customers mutually exchange interest flows calculated with defined methods in a specific maturity, to avoid interest risk that will occur as a result of the fluctuations in the interest rates or to generate return from the changes in the interest rates.

  • XCCY (Cross-Currency) Swap

Cross Currency Swap is formed by combining of Interest Rate Swap and FX Swap transactions. With this transaction, the customers aim to avoid the exchange risk and interest risk that might occur as a result of their commitment/receivables. In other words, the customer has the opportunity to convert his commitment/receivable in one currency to another currency.

  • TRS (Total Return) Swap

In Total Return Swap agreements, one of the parties generates the return of the asset subject to transaction as of the period, (equity, index, commodity, bond, Eurobond) by paying the funding cost (variable or fixed interest). With this transaction the customers have the opportunity to benefit from the return of the asset as if they owned the asset, without taking the asset into their balances. If the customer owns the related asset, he/she avoids decreases in the value of the asset.

They are products which are produced with more than one derivative product or with the use of deposit or bond/bill with derivative products at the same time and as per their definition they provide return or risk profile in unlimited options. The biggest advantage of these products is that they provide the opportunity to form customized structures in line with the expectations and needs of the customers.

Derivative products offer a certain return profile to the customers but includes various risks depending on the structure of the product. In other words, the customers can gain profit but they can also suffer from losses. For this reason the customers should first examine the risks before conducting derivative transactions and then take a decision.

Investment products are not a bank deposit and not an obligation of nor guaranteed by Denizbank A.Ş. and other related institutions or Savings Deposit Insurance Fund. Investment products are not under assurance by the Government. Investment products are subject to investment risks, including possible loss of the principal invested. Past performances is not indicative of future results, prices can go up and down. Investment products are subject to foreign exchange fluctuations including possible risk of loss of principal when investments are denominated in different currency. Any information about the investment products offered by the Bank including the ones mentioned herein, in no way considered as advice or suggestion or recommendation or consultancy service of the Bank. DenizBank reserves the right of changing the buying-selling conditions and content of the provided service and product at any time.

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