Innovative investment products from Crystal Finance

Crystal Finance Investments Ltd recently introduced innovative investment products targeted for professional treasury managers seeking optimum return for their short-term liquidity.

These products are issued by UBS AG, offering the security of one of the foremost banks in the world. Crystal Finance are the local representative of UBS Investment Funds.

These treasury management solutions are more commonly referred to as FX investor products (FXIP). FXIPs are an extremely attractive alternative to money market investments providing opportunity to enhance return-on-investment.

Their advantages include high degree of flexibility in a choice of currencies, time to expiry and yield, an option of over 20 major currencies, flexible investment duration from one week up to 12 months, and unconditional or limited capital guarantee.

The FX market is the most liquid and transparent market in the world. FXIPs have higher earning potential than with money market securities and there is no subscription or redemption charges.

The two most common FXIP's are the GROI (Guaranteed Return On Investment) and the DOCU (Double Currency Units).

The GROI is a structured product combining a fixed-interest investment (capital protection component) with an option strategy (income producing component). The degree of capital protection set on issue determines the minimum amount that is repaid at the end of the GROI's term.

Applying a 100 per cent capital protection on capital will offer the possibility of an above money market rate-of-return without any risk to the underlying capital invested.

The agreed rate will be paid if during the chosen term of the investment the rate of exchange of the investment currency will stay within an established range of a target currency.

For example, an investment in euro could be linked to the cross rate between euro and the US dollar staying within a chosen range. The narrower the range, the higher the investment coupon and vice versa. However in all circumstances the initial capital will be returned entirely at expiry. It is also possible to attach a minimum guaranteed coupon but this added security reduces the maximum coupon otherwise payable.

DOCU's are structured products on currencies that fall into the 'optimisation' category. These again are exchange rate-dependant securities, usually tailored-made on an over-the-counter (OTC) basis. DOCU's provide a fixed rate of interest above that paid by a traditional money-market investment, although are exposed to currency fluctuations.

Depending on the exchange rate at expiry, the investment amount and the agreed coupon is paid back to the investor in the investment currency or in the alternative currency at a strike rate fixed at the origin.

If the exchange rate moves within the parameters chosen by the client then repayment of both capital and interest will be in the base currency and the investor will have enhanced his return. If the exchange rates move outside the parameters the investor is repaid both capital and interest in the alternative currency and this could involve a marginal exchange variance. Treasury managers normally provide for such risks in their overall investment strategy.

In a low interest rate environment, treasury managers are looking for investment alternatives that can enhance their return.

Even private clients have recently built into their portfolios high cash allocation due to weak performing equity/bond markets and a lack of attractive investment alternatives. FXIPs are suitable for such professional investors to make the most of their liquidity which is parked awaiting better visibility in the long-term investment market. They offer an excellent opportunity to continue to return above benchmarks while protecting capital.

For more information contact Crystal Finance Investments Ltd on tel. 2122-6190 or e-mail dsaragozza@crystal.com.mt.