Currency Linked Investment

Currency linked Investment (CLI) is a structured product that offers you the chance to earn a higher interest income.

Currency Linked Investment is a structured product that allows you to earn a higher interest return if the exchange rate movement of the currency pair chosen by you is consistent with your view. It also provides you with a chance to buy foreign currency at a discount to the prevailing exchange rate when you make the investment. 

This is a structured product that consists of a time deposit (in the Investment Currency) and a currency option on an Alternate Currency of your choice.  

At the Fixing Date (same as Maturity Date):

• if the Alternate Currency has depreciated against the Investment Currency to a level below the Conversion Rate, the Principal and Interest on your investment will be paid in the Alternate Currency at the Conversion Rate;  
• if the Alternate Currency has NOT depreciated against the Investment Currency to a level below the Conversion Rate (or the Fixing Rate is equal to the Conversion Rate), the Principal and Interest on your investment will be paid in the Investment Currency.

As the product’s payoff is linked to exchange rate movements, the product is suitable for customers who have a basic knowledge in the operation and behavior of the foreign exchange market, and are willing to receive the Alternate Currency and incur a foreign exchange loss.

Note:

1. For details, please contact our staff at the Investment Services Section.
2. The information above is for your reference only, it does not constitute an offer, an invitation or a solicitation for an application or offer to invest in the Currency Linked Investment or enter into any transaction by any person, or a recommendation to invest in the Currency Linked Investment or enter into any transaction.
3. The “Terms for Investment Services” (in particular, the provisions relating to Currency Linked Investment) together with the Confirmation, leaflet and Important Facts Statement govern your investment in Currency Linked Investment.
4. If there is any discrepancy between the English and Chinese version, the Chinese version shall prevail.

Illustrative Examples 

The following examples are for illustration purposes and shall not constitute any representation or warranty by
the Bank in respect of any possible gain or loss.

1 week Fixed Deposit Rate for HKD 100,000 as of 5 July 2012: 0.01%p.a.

Return against different Fixing Rates 

Scenario 1  Best Case Scenario – AUD strengthens against HKD (Fixing Rate > Conversion Rate) 
Assuming the Fixing Rate is 7.9800, the repayment currency will be HKD
Principal + Interest: HKD 100,000 x (1 + 20.11% x 7/365) = HKD 100,385.67
Profit = HKD 385.67 

Scenario 2  AUD remains stable against HKD (Fixing Rate = Conversion Rate) 
Assuming the Fixing Rate is 7.9616, the repayment currency will be HKD 
Principal + Interest: HKD 100,000 x (1 + 20.11% x 7/365) = HKD 100,385.67
Profit = HKD 385.67 

Scenario 3  AUD weakens against HKD (Fixing Rate < Conversion Rate) 
Assuming the Fixing Rate is 7.9400, the repayment currency will be AUD 
Principal + Interest: 
Step 1: HKD 100,000 x (1 + 20.11% x 7/365) = HKD 100,385.67
Step 2: HKD 100,385.67 / 7.9616 = AUD 12,608.73

If convert to HKD at the prevailing exchange rate (AUD / HKD: 7.9400)
AUD 12,608.73 x 7.9400 = HKD 100,113.32
Profit = HKD 113.32 

Scenario 4  AUD weakens further against HKD (Fixing Rate < Conversion Rate) 
Assuming the Fixing Rate is 7.9036, the repayment currency will be AUD 
Principal + Interest: 
Step 1: HKD 100,000 x (1 + 20.11% x 7/365) = HKD 100,385.67
Step 2: HKD 100,385.67 / 7.9616 = AUD 12,608.73

If convert to HKD at the prevailing exchange rate (AUD / HKD: 7.9036)
AUD 12,608.73 x 7.9036 = HKD 99,654.36
Loss = HKD 345.64 

Scenario 5  Worst Case Scenario – AUD drops to zero against HKD
In any case of receiving AUD as the repayment currency, if the exchange rate of AUD against HKD drops to zero, then the loss of the customer would be the entire investment amount. 

Scenario 6  The Bank becomes insolvent or defaults on its obligations
Assuming that the Bank becomes insolvent during the tenor of the Currency Linked Investment or defaults on its obligations under the Currency Linked Investment, you can only claim as its unsecured creditor. You may get nothing back and suffer a total loss of your deposit amount.

The key risks for Currency Linked Investment are set out below. However, these risks do not represent all possible risks associated with an investment in Currency Linked Investment. You should obtain any necessary and appropriate professional advice before investing in this product.

Non-Principal Protected Structured Product – CLI is a structured product involving derivatives. CLI is not principal protected. You could lose all or part of your original investment amount.

Derivative Risk – CLI is embedded with foreign exchange option(s).  Option transactions involve risks, especially when selling an option.  Although the premium received from selling an option is fixed, you may sustain a loss well in excess of such premium amount, and your loss could be substantial.

Not a Protected Deposit  – CLI is not equivalent to time deposit and should not be regarded as a substitute for time deposit.  CLI is not a deposit product and will not be included in the Deposit Protection provided by the Macao SAR Government.

Foreign Exchange Risk – The return of CLI is linked to the exchange rate between the Investment Currency and the Alternate Currency.  Movements in exchange rates can be sudden and drastic.  You will be exposed to a risk of loss arising from exchange rate fluctuations.  If the Investment Currency and/or Alternate Currency is not in your home currency, and you choose to convert it back to your home currency upon maturity, you may make a gain or loss due to exchange rate fluctuations.

Limited Potential Return – Investing in CLI is not the same as investing in the Alternate Currency directly.  Even if your view of the market movement of the Alternate Currency is correct, the maximum potential return is limited to the total interest amount for the CLI.

Credit Risk – CLI is not supported by any collateral or guarantee.  CLI is subject to the creditworthiness of the Bank.  If the Bank becomes insolvent or goes into liquidation or defaults on its obligations under the CLI while your CLI is still outstanding, you will rank as an unsecured creditor of the Bank and could, in the worst case, lose your entire investment amount irrespective of the terms of the CLI.

Liquidity Risk – CLI should be held until maturity.  CLI is not listed on any exchange and is not transferable.  Any termination, cancellation or withdrawal prior to maturity is subject to the consent of the Bank.  You may incur significant costs or losses as a result of early termination, cancellation or withdrawal.

Risks of early termination by the Bank – The Bank has the right (but not the obligation) to terminate this product early upon occurrence of certain events. If this product is terminated by the Bank early, you may suffer a substantial loss under this product.

Suitability – This is a structured product involving derivatives. The investment decision is yours but you should not invest in the CLI unless the intermediary who sells it to you has explained to you that the product is suitable for you having regard to your financial situation, investment experience and investment objectives.