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Currency Linked Investments (CLIs)
At a Glance
Tailored to your choice of currency pairs, strike rate and tenor
Potentially earn higher returns on the principal amount invested
Choose your investment tenors ranging from 1 week to 6 months
What are CLIs?
CLIs are dual-currency investments involving a currency option. The option gives the CLI issuer the right to repay the principal and interest at maturity, in either the base currency or alternate currency.
CLIs are often used by investors to improve returns on cash holdings, when they have a stable or mildly bullish view of a particular currency pair. Investors are looking for a higher return on their base currency deposits, instead of buying a particular alternate currency outright.
If they had a strongly bullish view of the alternate currency, they might prefer to buy that currency outright at the prevailing market price.
CLIs are sophisticated investment products that carry significant risks and are not suitable for investors who do not comprehend the product or are risk averse.
How do CLIs Work?
Investors agree with their bankers on the:
- Principal amount in the base currency
- Second or alternate currency
- CLI’s tenor
- “Strike price” (the “strike” exchange rate of the chosen currency pair) and consequently, the
- Enhanced yield for the CLI
Illustrative example of a CLI:
|Current AUD/USD exchange rate||0.9067|
|Enhanced yield||6.5% p.a.|
Potential use cases of CLIs include:
- Your child will pursue further studies in Australia. You do not mind acquiring AUD periodically as savings to eliminate the risk that AUD might appreciate significantly against SGD by the time your child is ready to leave for Australia. You can either buy the AUD outright at the prevailing market rate (the spot rate) or invest in a CLI for either an enhanced yield on your SGD, or convert your SGD to AUD at the agreed strike level.
- You have USD in your account, and you believe AUD/USD will trade within a narrow range. You may invest in an AUD/USD CLI for potentially an enhanced yield if AUD/USD does not hit or fall below the strike level.
Benefits of CLIs
Investors may earn an enhanced return if their view of exchange rate movements are accurate.
Can be tailored to suit investors’ needs, based on their of currency pairs, the strike rate, and tenor.
A CLI’s tenor is generally short term, ranging from 1 week to 6 months.
In deciding the currency pairs, investors can choose from a variety of currencies, including AUD, CAD, CHF, EUR, JPY, NZD, SGD, and USD.
Risks of CLIs
Investors face the risk of having their base currency converted to the alternate currency at a rate lower than the market at maturity.
CLIs are meant to be held to maturity. Early withdrawal may result in investors receiving less than their principal amount.
CLIs are issued by financial institutions and investors are exposed to the issuer’s credit risk.
To understand the product-related terms, visit our Glossary.
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