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GMRA A-Z: Contractual Currency

At a high level, the “Contractual Currency” is the currency in which the “Purchase Price” and the “Repurchase Price” (but not a close-out amount) is denominated.  In addition, the concept of the “Contractual Currency” is also used in the definition of “Market Value”.  As such, calculations of the value of Purchased Securities are converted into the Contractual Currency – allowing for cross-currency repo.

The GMRA does make clear that the recipient of any payment can accept payment in any other currency if it wants to.  However, in these circumstances, the obligation of the party making the payment is only discharged to the extent that the recipient of the payment is able to convert the non-Contractual Currency into the Contractual Currency and still fully discharge the debt due.

Paragraph 7(b) of the 2011 GMRA further states that, to the extent that there is any shortfall between the amount owed to a party in the Contractual Currency and the amount actually received by that party in the Contractual Currency (whether after any currency conversion has been made or not) then the party which owes the shortfall must pay over that amount immediately in the Contractual Currency so as to make up the shortfall.  In essence, this type of provision is an attempt to guard against arguments that an under-payment has been accepted by the recipient and therefore there is no requirement to make good any shortfall.  It is also helpful in guarding against the risk where a judgment may be awarded in one currency which, when converted into the desired currency, results in a shortfall in the desired currency.

Finally, if the amount received by a party in the Contractual Currency exceeds the amount that was actually due and payable (in the Contractual Currency) then the party in receipt of that amount must “promptly” refund the excess to its counterparty.

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