Don’t let bad weather affect your business
Extreme climate events – precipitation, heat, cold or wind – can affect a company’s results. Breweries, cinemas and theme parks are all good examples of businesses influenced by weather conditions. It is possible, however, to hedge against the risk of weather-related losses. This is not the same as insurance, which is designed for low-probability events such as hurricanes and tornados. Weather derivatives, by contrast, cover high-probability events, such as an unusually dry summer.
BNP Paribas Fortis has developed financial instruments that provide effective protection against adverse weather conditions.
Tone down the effects of inflation
Inflation affects the margins of your products and services. The unpredictability of inflation rates has given rise to a market of inflation buyers (such as pension funds and insurance companies) and sellers (public authorities, utilities, real-estate companies, distribution companies and public enterprises).
Swap inflation over the counter
Swaps linked to inflation are an over-the-counter transaction between two parties. They agree to exchange one or more money flows in the future. The fixed-rate payments of one party – referred to as the ‘inflation seller’ – are set at the start of the contract. The payments of the other party – referred to as the ‘inflation buyer’ – are still unknown at the start of the contract. These inflation-linked payments depend on the development of a price index.
Since inflation-linked swaps involve over-the-counter contracts, any conceivable derivative is possible in theory. However, the three most frequently used types of inflation-linked swap are:
- The zero-coupon inflation-linked swap
- The year-on-year inflation-linked swap
- The inflation-linked income swap
BNP Paribas Fortis has built up many years of experience in the derivatives trade and the conclusion of inflation-linked contracts.