Monday, November 19, 2007

Dual Currency investment

Dear Mr. Tan,

My bank offered me a high rate of interest on a dual currency deposit. Is it safe to invest in this type of deposit?


A Dual Currency Investment is not a deposit. It is an investment product. You are given a higher interest rate, but you face the risk of suffering the loss on the original investment, if the currency rate goes against you.

The principal sum and interest are repayable on maturity in the base currency (i.e in which the investment is made) or the linked currency, whichever is the lower.

If the linked currency goes up, you will only get the fixed return. If it goes down, you will have to suffer a loss. Your loss can be quite substantial.

Usually, the bank does not offer an interest rate that is sufficient to compensate you for the risk.

If you are willing to take the currency risk, it is better to invest in the foreign currency directly. If the currency appreciates, you will get the gain from the currency and the interest rate (which is likely to be higher than in Singapore dollars). The total gain is likely to be better than the interest rate paid on the Dual Currency Investment.

Read this FAQ:

1 comment:

Anonymous said...

Regardless of name of these yield enchanment deposit bank gave to it.
It involve a put option in it. If you have problem understand the theory and pricing of it.
Please avoid those product as you are a seller of those put option !!

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