Currency-Linked Contract

Currency-Linked Contract

Currency-Linked Contract is a contract linked with a currency option that aims to offer you investment income and meet your financial needs for foreign currencies. Depending on the market situation and your financial needs, you may be able to get better returns.

How does a Currency-Linked Contract work?

Simply select one of ten base currency (e.g. HKD, USD, EUR, GBP, CAD, JPY, AUD, NZD, CHF or CNH, etc.) and a linked currency which you may be paid at maturity. You can choose an investment period of 1 week, 2 weeks, 1 month, 2 months, 3 months, 6 months and 1 year. We will fix an annual interest rate and a strike rate at the time when the deal is made. At maturity, the principal and its earnings will be paid in the Base Currency or Linked Currency whichever has depreciated against the other.

Illustration

Base Currency

USD

Linked Currency

AUD

Investment Amount

USD100,000

Trade Date

11 July

Effective Date

13 July

Determination Date

18 July

Maturity Date

20 July

Investment Period

7 days

Interest Rate

18.37%

Strike Rate

AUD/USD 0.7420

 

On the Determination Date

  • if the AUD/USD exchange rate is equal to or higher than 0.7420, you will receive principal and interest in USD at maturity.
  • if the AUD/USD exchange rate is lower than 0.7420, you will receive principal and interest in AUD at maturity.

Case for the Currency-Linked Contract

 

(for an investment period of 1 week with a principal amount of USD100,000)

Type of Deposit
Interest Rate2
AUD/USD Exchange Rate on the Determination  Date
P+I at Maturity
USD Equivalent at Maturity3
Profit / (Loss)
High Yield Currency-Linked Deposit
18.370%p.a.
0.7440
USD100,357.19
USD100,357.19
USD357.19
0.7420
USD100,357.19
USD100,357.19
USD357.19
0.7400
AUD135,252.28
USD100,086.69
USD86.69
0.7380
AUD135,252.28
USD99,816.18
(USD183.82)

  1. Assume the exchange rate of AUD/USD is 0.7420 on the investment date.
  2. The interest rate are quoted as of 11 July 2005 and are for reference only. They do not represent the actual returns, if any.
  3. Assume the exchange rate of AUD/USD on the maturity date is the same as that on the determination date.

Currency-Linked Deposit Return & Risk Analysis

Minimum Investment Amount

The minimum investment amount for Currency-Linked Contract is just HKD38,000 or USD5,000 (or its equivalent in any other foreign currency).

Tailor-made Contract to Suit Your Needs

We understand that a standard contract may not fit all customers, that's why we also offer tailor-made Currency-Linked Contract. If your investment amount reaches HKD200,000, USD30,000 (or its equivalent in any other foreign currency) or above, you can specify the strike rate, investment period and the currencies that will fit your unique needs.

Greater Flexibility with Overdraft Facility

If you require additional cash during the investment period, we can offer you an overdraft facility that allows you to manage your finances with greater ease and flexibility, and at the same time enjoy higher returns from the contract.

Risk Disclosure

  1. You should not invest in Currency-Linked Contract based on this page alone. Before making any investment decision, you should read the offering documents (including the "Important Facts Statement") to understand the nature and risks of the product.
  2. This is a structured investment product involving derivatives. The investment decision is yours but you should not invest in this product 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.
  3. Not a time deposit – Currency-Linked Contract is NOT equivalent to, nor should it be treated as a substitute for, time deposit. It is NOT a protected deposit and is NOT protected by the Deposit Protection Scheme in Hong Kong.
  4. Derivatives risk – Currency-Linked Contract 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.
  5. Limited potential gain – The maximum potential gain is limited to Interest Amount.
  6. Maximum potential loss – Currency-Linked Contract is not principal protected: you could lose all your investment amount.
  7. Not the same as buying the Linked Currency – Investing in Currency-Linked Contract is not the same as buying the Linked Currency directly. Customers cannot enjoy the performance of the Linked Currency.
  8. Market risk – The return of Currency-Linked Contract is linked to the exchange rates of the Base Currency against the Linked Currency. Movements in exchange rates can be unpredictable, sudden and drastic, and affected by complex political and economic factors.
  9. Liquidity risk – Currency-Linked Contract is designed to be held till maturity. You do not have a right to request early termination of this product before maturity.
  10. Credit risk of the Bank – Currency-Linked Contract is not secured by any collateral. When you invest in this product, you will be relying on the Bank’s creditworthiness. If the Bank becomes insolvent or defaults on its obligations under this product, you can only claim as an unsecured creditor of the Bank. In the worst case, you could suffer a total loss of your Principal Amount.
  11. Currency risk – If the Base Currency and/or Linked 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.
  12. 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, such adjustments or early termination events may negatively affect your return or loss under this product.
  13. Renminbi Currency risk – If you choose CNY as a Deposit Currency or a Linked Currency, then you should note the following:
    • The Chinese Renminbi is currently a restricted currency. Due to exchange controls and/or restrictions imposed on the convertibility or utilization of CNY which in turn is affected by, amongst other things, the PRC government’s control, there is no guarantee that disruption in the transferability, convertibility or liquidity of CNY will not occur. There is thus a likelihood that you may not be able to convert the Chinese Renminbi received into other freely convertible currencies.
    • You should understand the product will be settled in CNY deliverable in Hong Kong, which is different from that of CNY deliverable in Mainland China. As the offshore deliverable Chinese Renminbi market is currently in the developing phase, there is no market standard determination of the exchange rate involving deliverable Renminbi. Customer must therefore be comfortable with the Bank’s good faith determination of the Fixing Rate. All determinations made by the Bank in good faith shall be conclusive and binding on you.
    • If you do not have a CNY deposit account outside the People’s Republic of China (which shall exclude the Hong Kong and Macao Special Administrative Regions and Taiwan), you shall be required to open such account with the Bank, in order to receive payment in CNY.
    • Should you decide to convert the Renminbi amount back into his/her home currency or vice versa, you should bear in mind the risk of exchange rate fluctuations that may cause a loss on conversion of Renminbi back into such other currency or vice versa.
    • The Relevant Strike Rate, Fixing Rate and other relevant exchange rate of the relevant currency pair will be quoted in offshore Renminbi (CNH) against alternate currency.

Important Information

The above information is for reference only and does not constitute any offer or solicitation to subscribe or redeem. You should perform your own due diligence on this investment or seek independent tax, accounting, legal, financial and other professional advice prior to the placement of the Currency-Linked Contract.

This page is issued by Industrial and Commercial Bank of China (Asia) Limited. The contents have not been reviewed by any regulatory authority.