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Premium Deposit

Product Features:
Deposit in currency A without concern of getting currency B at the agreed exchange rate at the delivery day, expecting high interest rate.

Key Benefit:
Client may: Have an expectation of the future exchange rate or combine with his own foreign exchange demand to choose the currency pair. If no currency exchanged at the delivery day, get a higher interest rate. If currency exchanged, and clients need currency B initiatly, get currency B with a better exchange rate than spot rate at the trade day.

Main Risk:
If currency exchanged at the delivery day, and clients have to take some loss if they still need currency A.

For Example:
An importer needs 1million EUR to pay for the raw materials one month later. Now EUR/USD is 1.20, and the importer expects EUR to keep depreciating, but not too much, and will buy at around 1.18. The traditional method is holding USD deposit in current account till the target EUR price although the USD deposit rate is quite low. Then the premium deposit is a better choice. The importer can deposit 1.18 million USD, features as followed:

Principal: USD
Trading Day: Quote Date
Value Day: Quote Date +2 Business Day
Delivery Day: Value Date +1 Month
Reference Day: Due Date -2 Business Day
Interest Rate: 6.56%
Currency pair: EUR/USD
Spot rate: EUR/USD 1.2000
Strike Price: EUR/USD 1.1800
Principal & Interest Payment: 2:00pm Beijing at reference day, the bank has the right to choose to pay off principal & interest either by EUR or USD.
Interest: Act/360
Business Day: New York, London, Tokyo