It is easy to be cheated (6) - Currency linked notes

This is similar to the equity linked notes. They are usually marketed as Dual Currency Investments or Dual Currency Deposits. 

They are created by financial institutions and usually take the following form - the capital is invested in a certain foreign currency. If the currency rate stay above a certain price X during the specified , the investor gets a specified interest rate, which is higher than fixed deposit rate. 

If the currency rate fall below a certain price Y, the investors have to take delivery of the specified currency. The investors are told that they can keep the currency until it recovers in value. The investor think that it is all right to keep the currency.

This is how the investor can be cheated. If the specified currency goes up 10% during the holding period, the investor gets a certain interst rate, which is lower than the actual gain. The product issurer keeps the balance of the gain.  If the currency drops by 10%, the investor has to bear the full paper loss. 

There is no way for the retail investor to know if the terms of the transactions are fair. As the terms are determined by the product issuer, it is likely that the terms are created to make a profit for the issuer, at the expense of the investor.

Many people have lost a large proportion of their capital when the currency market goes against them. If the market goes in their favour, the received a higher interest rate, but they were not aware that this is much lower than the actual gain.  

To make the matter worse, some financial institutions lend money to take five times of the risk of the invested capital. The retail investors were not aware that their risk has increased five times due to the leverage. If the currency drops 20%, they could lose their entire capital. They do not get a commensurate return if the share price moves in their favour! 

Is this fair? Can it be considered as cheating?

Tan Kin Lian

 

Logic Quiz 5-1 (Vol 4)

This is more difficult, as it involves 5 houses.

 There are five houses with different colours in a row. Each occupant plays a different sport, keeps a different pet and drinks a different beverage.

 1. The tennis player lives in the red house.
 2. The pekingese owner drinks brandy.
 3. The soccer player lives right of the brown house.
 4. The rugby player drinks martini.
 5. Edward drinks vodka.
 6. The rum drinker lives in the green house.
 7. The cricket player lives left of the whiskey drinker.
 8. Daniel keeps pomeranian.
 9. Albert lives in the white house.
10. The poodle owner lives left of the collie owner.
11. Henry lives right of the yellow house.
12. Bobby plays basketball.
13. The brown house is the fourth house.
14. The white house is the second house.

 Question: Who keeps schnauzer?

Give your answer here. The correct answer will be displayed when you submit your entry.

Benchmark
1 to 10 mins: very good
10 to 15 min: good
15 to 20 mins: fair
more than 20 mins: need more practice! 

More of the quiz
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