Prepared By:-

Module 3 Prepared By:-

Project Financing

October 2025
About the Instructor

Md Shakibul Alam

Current Position Vice President at ZA Capital Advisory

13+ years of experience in Infrastructure and Energy Advisory, Public Private

Field of Expertise Partnership (PPP) Advisory, M&As, Fintech, Investment Banking, Private Equity,
Venture Capital, Corporate Advisory, Financial Modelling and Valuation

Served in global and local top companies, including bKash, Robi Axiata Ltd., BRAC
Job Experience
EPL Investments, and RACE Asset Management, before joining ZA Capital

• Financial Modeling and Valuation Analyst certified by the Corporate Finance

Education Institute (CFI), Canada
• BBA and MBA in Finance from North South University

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Session-1

3
Table of Contents

Sl. no. Topics Slide Numbers

1 Project Financing – Overview 4
2 Project Finance vs Corporate Finance 5-6
3 Parties in Project Financing with structure 7-8
4 Use of Proceeds - Project 9
Project Financing: Local Currency vs
5 10
Foreign Currency
6 Information Memorandum Preparation 11
Contents of Information Memorandum and
7 12-15
Documents required for Loan
Steps of Obtaining a Project
8 16-17
Financing/Foreign Loan

4
Project Financing

• Financing extended to a Special Purpose Vehicle (SPV) created for the

project.

• Repayment is from project cash flows, not sponsor’s balance sheet.

• Interest rates may be fixed or floating (linked to LIBOR, SOFR, or local

benchmarks).

• Collateral/Security: Project assets, contracts (EPC, O&M, Offtake), and

cash flow escrow.

• Credit assessment focuses on project viability, Debt Payment and contract

strength.

EPC - Engineering, Procurement & Construction, OPC - Operation & Maintenance 5

Project Finance vs Corporate Finance

Feature Project Financing Corporate Financing

Company’s overall balance sheet & cash
Repayment Source Cash flows generated by the project
flows

Borrower Special Purpose Vehicle (SPV) Parent company or corporate entity

Recourse Limited or non-recourse to sponsors Full recourse to company assets

Moderate (depends on company risk

Leverage High (60–80% debt typical)
profile)

Tenor Long-term (often 7–25 years) Medium to long-term (usually 2–5 years)

Detailed allocation via contracts (EPC, Managed internally; less structured via
Risk Allocation
O&M, Offtake) contracts

Collateral Project assets & revenues Company assets and guarantees

Focus of Lenders Bankability of the project Creditworthiness of the company

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Key Takeaways

Project Financing: Corporate Financing:

• Focused on specific projects, • Focused on overall company financing
structured via SPV. needs.
• Risks are carefully allocated through • Relies on company’s balance sheet and
contracts. credit history.
• Repayment depends entirely on • Lenders have recourse to the entire
project cash flows. company, not just one project.
• Common in infrastructure, power, toll • Common in working capital,
roads, ports, and large industrial acquisitions, or corporate expansion
projects. financing.

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Typical Project Financing Structure

Security Agent

Holding the
Service Fees
Securities

Loan
Investment Special Purpose Project
Sponsor Vehicles (SPV) Financier
Principal + Interest

Account
Bank Facility
Agent
Flow of Funds Flow of service
*Depending on the structure, there might be an
escrow account or escrow agent

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 Parties in Project Financing

Party Role Function Key Interactions

Executes and operates the Receives investment, loan;
Development Project Project Entity development; central recipient of repays principal + interest; pays
funds and services service fees
Provides investment (equity or Invests into Development
Company Project Sponsor
capital) to initiate the project Project

Provides a loan to fund the Lends to Development Project;

Project Financier Lender / Creditor
project receives principal + interest

Receives securities from

Holds securities or collateral on
Security Agent Collateral Holder Development Project; collects
behalf of the lenders
service fees
Manages loan facility, monitors
Coordinates with Financier and
Facility Agent Loan Administrator compliance, communicates with
Project; receives service fees
parties
Handles investment/loan
Cash Flow Holds and manages project’s
Account Bank inflows and repayment/service
Manager funds and accounts
outflows
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 Cash waterfall of the Proceeds of the Project
Statutory Dues
• Taxes, regulatory fees, license renewals.
• Must be paid first to avoid legal penalties.
Revenues → Escrow Account
↓ Operation & Maintenance (O&M) Expenses
[1] Statutory Dues • Contractor fees, utilities, insurance, routine maintenance.
↓ • Keeps the project running smoothly.
[2] O&M Expenses
Debt Service
↓ • Interest, principal, and lender fees.
[3] Debt Service • Protects main lenders.
↓
[4] Dividends to Equity Dividends to Equity
↓ • Paid only if senior debt is cleared, DSRA replenished, and DSCR
[5] Surplus for Equity Holders covenant met.

Surplus
• Remaining cash: retained, used for early debt prepayment, or
extra dividends.
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 Project Financing: Local Currency vs Foreign Currency

Feature Foreign Currency Project Finance Local Currency (BDT) Project Finance

Currency of Debt USD, EUR, or other foreign currencies Bangladeshi Taka (BDT)

Interest Rates Often lower due to global market benchmarks May be higher due to domestic banking rates

Exposed to exchange rate risk; depreciation of

Borrower Exposure No FX risk; repayment in local currency
BDT increases repayment burden

Multilateral banks (e.g., World Bank, ADB), Local commercial banks, DFIs, government
Source of Funds
foreign commercial banks, export credit agencies funds

Often strict due to international lenders’ risk

Loan Covenants Generally aligned with local banking regulations
appetite

Can be long-term (10–20 years) with grace Medium to long-term (5–15 years) depending on
Tenor & Repayment
periods project type

Borrowers may need FX hedging (forward

Hedging Usually not required
contracts, swaps)

Projects with foreign revenue streams or import-

Ideal For Projects with domestic revenue streams
heavy capital expenditure
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 Information Memorandum Preparation

• Definition & Preparation

•The IM/PIM is prepared by sponsors and financial advisors before seeking funding.
•It is a formal document, often 50–150 pages, that presents the project professionally to potential financiers.

• Purpose
•Provides a structured overview of the project, making it easier for lenders and investors to understand the opportunity.
•Acts as a marketing tool, presenting the project’s viability and expected returns.

• Content Highlights
•Project Description: Scope, timeline, technical specifications, and location.
•Financial Structure: Equity/debt mix, cash flow projections, DSCR, IRR, NPV.
•Risks & Mitigation: Construction, operational, market, regulatory, and political risks.
•Sponsor & Contractor Info: Track record, experience, and financial strength.

• Key Benefits
•Due Diligence: Lenders use it to evaluate creditworthiness and assess project risks.
•Transparency: Clear and structured information builds lender and investor confidence.
•Alignment: Ensures all stakeholders are on the same page regarding project objectives, timelines, and expectations.
•Faster Financial Close: Well-prepared IM reduces negotiation delays and improves the chances of securing funding quickly.

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 Key Contents of an Information Memorandum (IM)

1. Executive Summary 3. Industry & Market Analysis

High-level snapshot of the project. Provides context of demand and supply.
Includes: Demand drivers: population growth, industrial expansion,
Project overview: type, size, objectives. energy demand, traffic volume.
Sponsors: background, track record, financial Supply landscape: current competitors, substitutes, new
strength. entrants.
Funding requirement: total project cost, equity Pricing trends: tariffs, toll rates, regulatory price setting.
contribution, debt sought. Benchmarking: similar projects in the region.
Purpose: Give lenders/investors a quick understanding
of “what, who, and how much.” 4. Project Structure
Special Purpose Vehicle (SPV): incorporation,
2. Project Description shareholding, governance.
Detailed technical information about the project. Ownership structure: equity breakdown among
Scope: capacity (e.g., 500 MW power plant, 50 km sponsors/investors.
expressway). Contractual framework: key agreements linking
Location: geographical, connectivity, strategic government, EPC contractor, operator, and lenders.
importance. Visual “contractual web diagram” is often included.
Timeline: construction milestones, commissioning date,
operating period.
Technology: specifications, suppliers, compliance with
international standards.
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Key Contents of an Information Memorandum (IM)

5. Financial Model & Assumptions

Central to the IM.
Includes:
Revenue assumptions (traffic/toll rates, tariff, production volumes).
CAPEX breakdown & funding schedule.
OPEX & maintenance cost assumptions.
DSCR (Debt Service Coverage Ratio), IRR (Internal Rate of Return), NPV.
Sensitivity analysis (worst/best/base cases).

6. Projected Financials (5–20 years)

Long-term financial projections matching the loan tenor (often 15–20 years).
Includes:
Projected Income Statement (revenues, EBITDA, net profit).
Projected Cash Flow Statement (operating, investing, financing cash flows).
Projected Balance Sheet (assets, liabilities, equity).
Key ratios: DSCR, LLCR (Loan Life Coverage Ratio), gearing, payback period.

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Key Contents of an Information Memorandum (IM)
7. Risk Analysis & Mitigation
• Construction risk: mitigated by EPC contract with LDs.
• Operational risk: managed via O&M contract, warranties, insurance.
• Market/offtake risk: addressed by take-or-pay agreements.
• Political/regulatory risk: mitigated by government support or political risk insurance.
• Environmental & social risks: mitigation plan included in E&S impact assessment.

8. Funding Plan
• Capital structure: Debt-to-equity ratio (e.g., 70:30).
• Sources of funds: commercial banks, DFIs, ECAs, bonds, equity sponsors.
• Proposed terms: tenor, interest rates, grace period, repayment structure.
• Equity contribution schedule by sponsors.

9. Appendices
• Technical feasibility studies.
• Environmental & Social Impact Assessment (ESIA).
• Traffic studies / demand forecasts.
• Legal opinions.
• Detailed financial model (Excel).
• Resumes of key project team members.
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 Loan Documents

Loan Agreement Security Documents

Types of Security:
• Key Provisions: • Mortgage/charge on land, building, plant &
o Loan amount, tenor, interest rate, machinery
repayment schedule • Assignment of project contracts (EPC, PPA,
o Conditions precedent (CPs) before O&M)
disbursement • Pledge of project company shares
o Covenants: • Assignment of insurance proceeds
▪ Financial: DSCR, gearing ratio,
• Escrow/Trust accounts for cash flow management
dividend restrictions
▪ Operational: maintaining insurance,
Common Negotiation Issues
timely reporting
• Step-in rights of lenders in case of default
o Events of Default: non-payment, covenant
• Termination payments (especially early termination)
breach, insolvency
• Change in law provisions
o Remedies for lenders: acceleration, step-in
• Force majeure allocation
rights
• Dispute resolution: arbitration vs. courts

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Steps of Obtaining a Project Financing

Internal Preparation

• Assessment of Current Debt: Review existing loan terms, interest rates, maturity dates, and covenants.
• Financial Analysis: Evaluate cash flow projections, debt service coverage ratio (DSCR), and benefits (e.g., lower interest
costs, extended maturity).
• Objective Setting: Define refinancing goals (e.g., reduce interest expense, improve liquidity, adjust repayment schedule).
• Documentation: Prepare financial statements, credit reports, and business plans to support the refinancing application.
• Advisor Engagement: Hire legal/financial advisors if needed for structuring the deal.

Pitching and Approval from Lenders

• Lender Selection: Identify potential lenders (banks, institutional investors, or private debt markets) and compare terms.
• Proposal Submission: Present refinancing terms (loan amount, interest rate, tenure, collateral) via a formal proposal.
• Due Diligence: Lenders assess creditworthiness, collateral value, and business viability.
• Term Sheet Negotiation: Finalize key terms (e.g., fixed vs. floating rate, prepayment penalties, covenants).
• Conditional Approval: Lender grants approval pending regulatory/legal compliance.

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Steps of Obtaining a Foreign Loan
Regulatory Approval
• Compliance Check: Ensure adherence to financial regulations (e.g., central bank rules, securities laws for bond issuances).
• Filing Requirements: Submit applications to relevant authorities (banking regulators for loans).
• Approval from BIDA: Obtain approval
• Third-Party Reports: Obtain valuations (e.g., property appraisals) or audits if required.
• Approval Timeline: May take weeks to months depending on jurisdiction and complexity
Loan Agreement and Receiving Proceeds
• Legal Documentation: Draft and sign loan agreements, security documents (e.g., mortgages, guarantees), and disclosure
schedules.
• Closing Conditions: Fulfill remaining lender requirements (e.g., insurance, board resolutions).
• Disbursement: Lender transfers funds to the borrower’s account; old debt may be repaid simultaneously.
• Fees & Costs: Pay closing costs (e.g., origination fees, legal expenses).
Debt Payment
• Settlement of Existing Debt: Use refinancing proceeds to repay prior lenders and terminate old agreements.
• Servicing New Debt: Begin new repayment schedule; monitor covenants (e.g., leverage ratios).
• Post-Refinancing Review: Assess achieved savings/benefits and update debt management strategy.
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Session-2

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Table of Contents

Sl. no. Topics Slide Numbers

1 Why Foreign Currency Loans 20
2 Advantages/Challenges of FC Loans 21-22
3 Risks Associated with Foreign Currency Loans 23
4 Project Financing – Key Ratios 24-25
5 Key Lenders in Offering FC Loans 26
6 Types of Fees in Project Financing with example 27-28
7 Sample Term Sheet of Foreign Loan 29

8 Hedging Mechanisms with examples 30-35

9 Key Jargons 36-38

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Why do Companies need Foreign Currency Loans

Foreign currency loans typically carry lower interest rates (SOFR, EURIBOR
Lower Cost of Borrowing
+ margin) than local loans.

Payments to global suppliers, technology vendors, or contractors often need

Financing Imports or CapEx
to be made in USD or EUR.

Local banks may lack capacity for long-tenor or large-ticket financing (e.g.,
Insufficient Local Capital
infrastructure, power plants).

Exporters with FC earnings can repay loans in same currency (natural

Export-Driven Businesses
hedge).

Reduces dependency on domestic lenders and mitigates local liquidity

Diversification of Funding Base
crunch.

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 Advantages of FC Loans

• Lower Interest Rates: FC loans are typically benchmarked to international reference rates like SOFR
(Secured Overnight Financing Rate) or EURIBOR (Euro Interbank Offered Rate), which tend to be lower
than local currency benchmark rates such as those used for BDT (Bangladeshi Taka) loans.
• Longer Tenor and Larger Ticket Sizes: FC loans usually offer longer repayment periods, ranging from 10
to 15 years, which is often more accommodating than local loans. As the capacity of International Lenders
are larger due to their liquidity, FC loans typically have larger ticket sizes which can exceed USD 10 Million.
• Helps with Globalization & Imports: FC loans are well-suited for companies involved in importing capital
goods, contracting foreign consultants or services, or paying offshore contractors, as these expenses are
often denominated in foreign currency.
• Supports Export-Oriented Growth: Exporters earning revenue in foreign currency (especially USD) can
repay FC loans using their export earnings, thereby avoiding conversion losses or mismatches between
income and debt servicing obligations.
• Diversifies Capital Sources: Accessing FC loans allows companies to tap into international capital
markets or offshore lenders, instead of being fully dependent on domestic banks.

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 Challenges of FC Loans

• Exchange Rate Risk: If the local currency (e.g., BDT – Bangladeshi Taka) depreciates against the foreign
currency (e.g., USD or EUR), the borrower will have to pay more in local currency terms to service the
same amount of debt.
• Interest Rate Volatility: Most FC loans are linked to floating benchmark rates such as SOFR or
EURIBOR. These rates fluctuate based on global monetary policy (especially from the U.S. Federal
Reserve or European Central Bank).
• Regulatory Burden: In countries like Bangladesh, availing foreign currency loans requires extensive
documentation and approvals, typically from the Bangladesh Bank or similar regulatory bodies.
• Not Suitable for Non-Exporters: FC loans are typically allowed only for companies with foreign currency
earnings, such as exporters or businesses with offshore receivables.
• Country & Political Risk: Political instability, foreign exchange controls, or government-imposed capital
restrictions in the borrower's country can hinder the movement of funds, including repayments or
disbursements.

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Risks Associated with Foreign Currency Loans

Risk Type Description

FX Risk BDT depreciation increases principal & interest repayment cost

Interest Rate Risk Rise in SOFR/Libor → higher interest outflows

Mismatch Risk BDT revenues may not match USD liabilities

Regulatory Risk Changes in FX rules, repatriation restrictions

Refinancing Risk Difficulty in rolling over or replacing maturing FC debt

Operational Risk Delays in FX conversion or mismanagement of FX contracts

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Project Financing – Key Ratios

1. Equity / Debt Mix

Definition: Proportion of project cost financed by equity vs. debt.
Significance: Determines financial leverage, risk allocation, and expected return for sponsors
and lenders.
Example: For a $100M power plant – $30M equity (30%) and $70M debt (70%).

2. Debt Service Coverage Ratio (DSCR)

Definition: Cash Flow Available for Debt Service ÷ Total Debt Service (interest + principal).
Significance: Measures ability of the project to meet debt obligations. Lenders typically require a
minimum DSCR (e.g., 1.20x – 1.30x).
Example: If annual cash flow is $13M and debt service is $10M → DSCR = 1.3x (acceptable).

3. Loan Life Coverage Ratio (LLCR)

Definition: NPV of Cash Flow Available for Debt Service during loan life ÷ Outstanding Debt.
Significance: Takes time value of money into account, providing lenders a longer-term view of
repayment capacity.
Example: NPV of CFADS = $140M; Outstanding Debt = $100M → LLCR = 1.4x.

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Project Financing – Key Ratios

4. Internal Rate of Return (IRR) (Project)

Definition: Discount rate at which NPV of cash flows of the Project = 0.
Significance: Measures project profitability and is compared with hurdle rate or cost of capital.
Example: If a $100M project generates annual cash inflows of $18M for 10 years, project IRR ≈ 13%.

5. Net Present Value (NPV)

Definition: Present value of project cash inflows minus outflows, discounted at cost of capital.
Significance: Positive NPV indicates value creation.
Example: A project requires $100M; discounted cash inflows = $120M → NPV = +$20M.

6. Payback Period
Definition: Time required to recover the initial investment from project cash flows.
Significance: Simple liquidity/risk measure, often used by sponsors alongside IRR/NPV.
Example: A $30M equity investment returns $6M annually → payback = 5 years.

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Key Lenders Offering FC Loans to Bangladeshi Entities

International Lenders
Multilateral Agencies IFC, ADB, World Bank, IDB

Development Finance Institutions (DFIs) DEG, Proparco, FMO, CDC

Export Credit Agencies (ECAs) US EXIM, Sinosure, Euler Hermes

Global Commercial Banks Standard Chartered, HSBC, Citi

Domestic Sources with FC Capacity

Offshore Banking Units (OBUs) of local banks EBL, BRAC Bank, DBBL

External Commercial Borrowing (ECB) Channels under Bangladesh Bank guidelines

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Types of Fees in Project Financing

Type Stage Range

Upfront/Arrangement Fees Loan Sanction/Signing 0.5% – 2% of loan amount

Commitment Fees Pre-Disbursement 0.25% – 1% p.a.

USD 10,000 –1 Mn+ depending

Legal & Advisory Fees Financial Close
on complexity
USD 5,000 – 25,000 p.a.
Agency & Monitoring Fees Post-Disbursement
depending on complexity

Hedging Costs Disbursement/Repayment 0.25% – 1% p.a.

Others Case-specific

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All-in-Cost of the Loan

Loan Size: USD 100 million

Tenor: 10 years

Fee Type Amount (USD) % of Loan

Arrangement Fee 1,000,000 1.00%
Commitment Fee 300,000 (est.) 0.30%
Legal/Tech Due Diligence 400,000 0.40%
Monitoring Fee (10 yrs) 200,000 0.20%
Hedging Cost (annual) 1,200,000 p.a. 1.20% p.a.
Total (upfront) 1.7 million 1.7%

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Sample Term Sheet of Foreign Loan

Item Details
Borrower ABC Textiles Ltd. (Bangladesh)
Lender XYZ Bank
Loan Type Foreign Currency Term Loan
Loan Amount USD 10,000,000
Currency United States Dollar (USD)
Purpose CapEx financing for new production line (export-oriented)
Tenor 7 years including 1-year grace period
Interest Rate SOFR + 3.25% per annum (payable quarterly)
Repayment Schedule Equal semi-annual principal installments after grace period
Arrangement Fee: 1.00% of loan amount
Fees
Commitment Fee: 0.50% p.a. on undrawn portion
Security First ranking charge on project assets and corporate guarantee
Prepayment Permitted with 1% premium (minimum 30-day notice)
Hedging Requirement Minimum 50% of FX exposure to be hedged through forward contracts
Governing Law English Law
Bangladesh Bank Approval Required under FE Circular No. XX/2024
Disbursement Conditions Submission of BB NOC, legal opinion, project budget, insurance confirmation
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Hedging Mechanisms for FC Loan Risk

Currency Forward Contracts

A currency forward is a customized, over-the-counter (OTC) contract between two parties to
exchange currencies at a predetermined exchange rate on a specified future date.

Key Elements

Currency Pair Two currencies that are supposed to be exchanged (i.e. BDT/USD)

Notional Amount The specific amount of each currency to be exchanged.

Settlement Date The future date when the exchange will take place.

The agreed-upon exchange rate at the time of contract creation, which will be used for the
Forward Rate
exchange on the settlement date.

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How Forwards Work

Agreement:
Two parties (e.g., a business and a bank) agree to exchange currencies at a future date at a specific rate.

Hedging:
Businesses use forwards to protect against unfavorable exchange rate movements, ensuring they know the
cost of future transactions.

Settlement:
On the settlement date, the agreed-upon exchange occurs, regardless of the current market exchange rate.

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 Currency Forward Contract Structure

Currency Forward Contract – Key Features

• A customized written agreement between two parties to

exchange currency at a fixed rate on a future date
• Locks in a predetermined exchange rate, protecting
against future exchange rate fluctuations
• Specifies the amount to be paid and the exchange rate for 135
133
the transaction 132
• At maturity, settlement occurs at the agreed forward rate, 129
131

regardless of market rates

126
• Hedges exchange rate risk for both buyer and seller 125
123
122

• Example:
• Buyer and seller agree on a forward rate of 1 USD = 125
1 2 3 4 5 6 7 8
BDT
• Even if the market rate rises above 125 BDT/USD, the Forward Rate Spot Rate
buyer still pays only 125 BDT per USD
• This protects the buyer from currency depreciation risks

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Hedging Mechanisms for FC Loan Risk

Interest Rate Swaps

An interest rate swap is a forward contract in which one stream of future fixed interest
payments is exchanged for floating interest payments on a specified principal amount.

Key Elements
This is one of the parties of the Swap contract who receives fixed rate interest rate and pays
Fixed Rate Receiver
floating interest rate to the other party

Floating Rate Receiver This party receives floating rate interest payments in exchange of fixed rate interest payments

This is the base amount on which interest payments are calculated, but it is not exchanged
Notional Principal
between the parties.

Payment Frequency The agreed-upon settlement dates till expiry of the Swap.

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Interest Rate Swap Structure

Both Parties enter into a Swap agreement where one party is Fixed rate receiver who pays floating
rate to the Floating rate receiver who pays fixed rate. There are multiple settlement dates mentioned
in the contract and Settlement is done through Cash i.e., the difference is paid in Cash. This way the
Parties can Hedge interest rate deviations according to their analysis.

Floating Rate
SOFT+0.7%

Fixed Rate Receiver Floating Rate Receiver

Fixed Rate
5%

Fixed Rate Floating Rate

Loan Loan

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 Interest Rate Swap Example

Interest Rate Swap – Cash Flow Dynamics

• The Fixed Rate Party receives a fixed 6.5% from the
8.88%
Floating Rate Party at each settlement date 8.05%
8.45%

7.32%
• Floating rate fluctuates over time (e.g.,, SOFR),
impacting net payments
6.50%
6.10%
• When the floating rate is lower than 6.5%:Fixed Rate 5.54%
5.04%
4.50%
Party benefits, as they pay less than they receive
• When the floating rate is higher than 6.5%:Floating
Rate Party benefits, as they receive more than they pay
1 2 3 4 5 6 7 8
• Parties exchange only the net cash differences at
Fixed Rate Floating Rate
predetermined settlement dates

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Key Jargons
Term Definition

The potential financial loss that arises when the value of the local currency (e.g.,
Exchange Rate Risk BDT) depreciates against the foreign currency in which a loan is denominated.
This increases the local currency cost of repaying the loan.

The uncertainty caused by fluctuations in interest rates (e.g., SOFR or

Interest Rate Volatility EURIBOR). Most FC loans have floating rates, so when global interest rates rise,
so do borrowing costs.

SOFR (Secured Overnight A benchmark interest rate for USD loans, reflecting the cost of borrowing cash
Financing Rate) overnight collateralized by U.S. Treasury securities.

EURIBOR (Euro Interbank The average interest rate at which European banks lend to one another. Often
Offered Rate) used as a reference rate for EUR-denominated FC loans.

An interest rate that varies over time based on an underlying benchmark (like
Floating Interest Rate
SOFR or EURIBOR), making loan repayments less predictable.

Foreign Currency (FC) Loans taken in a currency other than the borrower’s domestic currency (e.g.,
Loans USD or EUR), often from offshore or international lenders.
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Key Jargons

Term Definition
Government-imposed restrictions on currency exchange, including limits on converting or
FX Controls
transferring foreign currency out of the country.
Capital Repatriation Limitations or delays imposed by a country on sending profits or loan repayments back to foreign
Restrictions investors or lenders.
Geopolitical Uncertainty or disruption in the financial system due to political unrest, policy shifts, or
Instability international conflicts that may affect international financial transactions.
Settlement Date The future date on which the actual currency exchange will occur, as per the forward contract.
Currency Pair The two currencies involved in the forward contract (e.g., BDT/USD).
A risk management strategy to lock in prices or rates to avoid adverse currency or interest rate
Hedging
fluctuations. Forward contracts are a hedging tool.
A financial derivative where two parties exchange interest payments—typically fixed rate vs.
Interest Rate Swap
floating rate—on a notional principal. Used to hedge interest rate risk.
Fixed Rate Receiver The party in the swap who receives a fixed interest rate and pays a floating rate.

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Key Jargons

Definition
Currency Forward A customized OTC agreement to exchange a specific amount of currency at a predetermined rate
Contract (forward rate) on a future date. Used to hedge exchange rate risk.
The agreed-upon exchange rate in a forward contract, which will be used regardless of the market
Forward Rate
rate at maturity.
The principal amount of the forward contract, used to calculate the value of the currency
Notional Amount
exchange.
Floating Rate
The party who receives a floating interest rate and pays a fixed rate.
Receiver
The underlying amount on which interest payments are calculated, though it is not actually
Notional Principal
exchanged between parties.

Payment Frequency The schedule (e.g., quarterly, semi-annually) on which interest rate swap payments are settled.

The legal contract defining the terms of the interest rate swap, including fixed/floating rates,
Swap Agreement
payment dates, and notional amount.

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Thank You

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