FX and Cash Management
A currency option that allows you to potentially earn an enhanced yield on your principal amount.
A Currency linked investment is a dual currency investment that involves a currency option, giving you the opportunity to earn an enhanced yield based on your view of the movements of the exchange rate in the future and the risk undertaken.
A Currency Linked Investment is a dual currency investment involving a currency option which confers on DBS the right to repay the principal amount and interest at maturity in either the base or the alternate currency, regardless of your preference. All or part of the interest received on the Currency Linked Investment represents the premium on the currency option. Currency Linked Investments are subject to foreign exchange fluctuations, which may affect the return of your investment. Exchange controls may also be applicable to the currencies your investment is linked to. You may incur a loss on your principal sum in comparison with the base amount initially invested.
Assuming AUD/SGD spot rate is trading at 1.2800 and you invest SGD 100,000.
|STEP 1||Choose your base currency (the original currency invested): SGD|
|STEP 2||Choose your alternate currency: AUD|
(the alternate currency which you are comfortable in holding)
|STEP 3||Agree on a strike rate: 1.2700|
(the rate which you are comfortable in exchanging your base currency for the alternate currency)
|STEP 4||Choose a tenor: 1 Month (30 days)|
Based on your chosen currency pair, strike rate and tenor, the Bank determines that the enhanced yield (in base currency) is 5.0% p.a.
On the fixing date (2 business days before maturity), the prevailing exchange rate (spot rate) will be compared against the strike rate to determine whether you will be repaid the maturity proceeds in the base currency or the alternate currency.
If you are to be repaid in the alternate currency, the strike rate will be used to convert the maturity proceeds.
|1 month later on fixing date (2 business days before maturity):|
AUD strengthens against SGD compared to the strike rate (e.g. AUD/SGD rate is trading at 1.2750: spot rate is higher than strike rate).
You will receive your original investment + 1 month enhanced yield of 5.0% p.a. in SGD on maturity.
= SGD 100,000 + (100,000 x 5.0% x 30 / 365)
AUD weakens against SGD compared to the strike rate (e.g. AUD/SGD rate is trading at 1.2600: spot rate is lower than strike rate).
You will receive your original investment + 1 month enhanced yield of 5.0% p.a., converted to AUD at the strike rate of 1.2700 on maturity.
= AUD [(100,000 + 410.96) / 1.2700]
*Depending on the spot rate at maturity, immediate conversion back to base currency may result in an excess or shortfall. When the spot rate on fixing date equals the strike rate, you will receive the aggregate of the original investment amount and the enhanced yield in the alternate currency.
All figures and rates used above are for illustration purposes only. The above illustrations are not indicative of the likely or future performance of a CLI and do not cover all possible scenarios.
Currency Linked Investment (CLI) is a dual currency investment, which gives DBS Bank Ltd ("DBS") the right to repay you at a future date your principal and enhanced yield earned in either the base or the alternate currency, regardless of your preference at the relevant time. Dual currency investments are subject to foreign exchange fluctuations, which may affect the return of your investment. Exchange controls may also be applicable to the currencies your investment is linked to which may result in the loss of your principal sum.
The customer is taking on the credit risk of DBS with respect to all payments due under a CLI. In the worst-case scenario, where the Bank becomes insolvent, you will receive zero return and lose your entire original investment amount.
In general, changes in interest rates in the country issuing the alternate currency relative to interest rates in the country issuing the base currency may affect the future value of the base currency relative to the alternate currency, as implied by currency futures contracts, which would generally affect the value of the CLI. Interest rates may also affect the economy of a country issuing the relevant currencies and, in turn, the exchange rates and therefore the values of the currencies relative to one another. The interest rates for the base currency, with regards to the interest rate volatility, from time to time, may continue to be volatile. An investment in a CLI involves risks and should only be made after assessing, for example, the direction, timing and magnitude of potential future changes in the movement of interest rates, exchange rates and the terms and conditions of the CLI. More than one risk factor may have simultaneous effects with regard to the CLI such that the effect of a particular risk factor may not be predictable. In addition, more than one risk factor may have a compounding effect, which may not be predictable. No assurance can be given as to the effect that any combination of risk factors may have on the value of a CLI.
For more information on the features of the CLIs and its risks (including risks that are specific to each type of CLI), please refer to the relevant Product Summary, Termsheet and other offering documents which can be obtained from DBS branch on request.
This document is not intended to be exhaustive and does not constitute an offer, invitation, recommendation or solicitation of any action based upon it. This document should not be viewed as identifying or suggesting all risks, direct or indirect, that may be associated with any investment decision. The information provided does not take into account your individual needs, investment objectives and specific financial circumstances and you should read the relevant product documents (including without limitation the relevant Product Summaries and Termsheets) and/or obtain separate legal or financial advice regarding the suitability of the product, with regard to your specific investment objective, financial situation and particular needs before deciding to subscribe to or purchase any product. DBS and its related companies do not assume or undertake any duty to advise any person or investor, and accept no liability whatsoever for any direct, indirect or consequential loss arising from or in connection with any use or reliance on this document or anything contained in it. You may wish to seek advice from a licensed or an exempt financial adviser before making a commitment to purchase a CLI. In the event that you choose not to seek advice, you should carefully consider whether a CLI is suitable for you.
This publication is for your private information only and no part of this publication may be (i) copied in any form, by any means, or (ii) re-distributed without the prior written consent of DBS. DBS shall have no liability for any misuse or unauthorized distribution of this publication. Further information on the contents of this publication may be obtained upon request.