The Islamic Cross Currency Swap (ICCS), provides customers with a fully Shariah compliant instrument to manage multi-currency swaps. It is essentially an agreement between 2 parties to exchange profit and principal payment, which is denominated in different currencies. It will facilitate investors in Islamic finance instruments to manage both the foreign currency' and interest rate risks

Cross currency swap is a mechanism structured to allow bilateral exchange of profit streams using two parallel and back to-back Islamic marked-up sale transactions (Murabahah)

Profit rate swap is a mechanism structured to allow bilateral exchange of profit streams using two parallel and back to-back Islamic marked-up sale transactions (Murabahah)

IPRS can be structured based on the following Shariah principles

1. Murabahah

   A sale of commodity at the price the seller has purchased it, with the addition of a stated profit known to both the seller and buyer. It is a cost-plus profit sale in which the seller expressly discloses the profit.

2. Bai Bithaman Ajil

   BBA is a sale contract in which the payment of the price, a cost-plus profit, is deferred and payable at a certain particular time in the future

3. Bai-el-Inah

   Sale of a commodity on credit and repurchasing it for a lesser amount in cash. It is accepted by Shafie’s Teaching and confined within Malaysia

The minimum amount for IPRS transaction is RM5mil and the maximum amount is subject to the counterparty/ client’s limit

Islamic Profit Rate Swap contract/transaction period can range from a minimum period of minimum 6 months and no maximum tenors depending on requirements and market availability

Features

ICCS is a basic derivative product traded over the counter (OTC) where 2 parties agree to exchange future periodic profit cash flows based on predetermined notional amount. Both counterparties should have signed a standard Master Agreement and other supporting documents before concluding any deal

Settlement normally is on quarterly basis. If the settlement falls on a holiday, the settlement will be carried forward to the next working day

Net profit is settled between 2 counterparties where if:

• The fixed rate is higher than the floating rate; the fixed rate receiver (offerer) will be receiving net of the fixed rate minus the floating rate
• The fixed rate is lower than the floating rate; the fixed rate receiver (offerer) will be paying net of the floating rate minus the fixed rate
• Day count : Actual / 365

Formula:
(Fixed rate – Floating rate)/100* (Actual days in the quarter/365) * Notional Amount