Structural Foreign Currency Deposits Analysis

As a new type of foreign exchange investment released in the second half of 2003, Structured Notes (SNs) not only promotes the amalgamation of domestic and international financial marketplace, it provides more choices of returns and risks for investors, and new profit-making models for banks. Early this year China Foreign Exchange Administration worked out a series of polices, which made it significantly convenient for enterprises and individuals to purchase foreign exchanges. Federal Reserve announced for the first time in the last four years to increase the interest rate from 1% of the lowest in the last 46 years to 1.75%. This sets a powerful blow on the foreign exchange market that has been currently in the ascendancy. Many citizens holding foreign currency are more concerned about foreign exchange investment products. In light of the present SNs enthusiasms of banks and individuals, this article analyzes into the returns and risks of SNs, so that investors could have a better understanding of these types of products, and make the right investment choices. Through related knowledge on SNs, this paper analyzes into returns and risks of SNs investments. Based on the actual situation of banks, it facilitates detailed discussions on all returns and risks, and brings forward a methodology for cautious choice of such products. This paper clarifies SNs in six parts. As a brand-new foreign exchange investment product, SNs appeared first abroad. China started its own SNs based on advanced experiences of foreign countries and its own innovation. Therefore, this paper first explains the development of SNs in foreign countries and in China respectively. SNs, viewed critically, is a combination of investments. It binds fixed income and choice products together, and integrates traditional investments and financial ramifications. Introduction to financial ramification products is good for further understanding of SNs. There is detailed information about the ramification tools mainly involved in China SNs in part three of this paper. Part four will go further into the definition, characteristics, risks, returns and investment models of SNs. It discusses the impact of the upward adjustment of interest rate of US dollars and RMB yuan, as well as key factors that must be considered in deciding on SNs products. Introductions of China SNs, both home and abroad, are mostly about structured foreign exchange products from all banks. They mainly focus on the different rate of return between these products and traditional savings, touching little about in-depth analysis and discussion of the returns and risks of SNs products for banks and individuals. SNs products, as an investment, must bear both returns and risks. How to effectively avoid risks and maximize returns is an issue for both investors and financial institutions. This paper talks about the returns and risks for individuals and banks in SNs products operation, to help achieve a good risk control.