Riyad Bank’s Structured Solutions team is able to structure and offer a wide range of structured products suiting the hedging and investing requirements of our clients. These products allow investors to express a view on a variety of Underlying assets which include Foreign Exchange, Interest Rate, Fixed Income, Equities and Commodities without risking their capital.
With cash interest rates remaining at relatively low levels, the enhanced returns available using structured products is attractive. With a 100% capital guarantee available, Depositors can express a bullish (or bearish) view in any asset class by risking merely the opportunity cost of the interest on their funds.
There are a variety of structures available with different combinations of payoffs (returns) against the risk assumed. Among the asset classes, the most popular structures have been on the Foreign exchange asset.
As an example, a customer with a view that Asian currencies will appreciate against the dollar during 2014 can buy a structure on which the return is based on the performance of a basket (created at the Depositor’s choice) of Asian currencies. The client will then receive a return based upon the performance of the basket with a 100% capital protection. If the performance of the basket is not as per the view expected, then the client will receive the Capital back.
The return available on this type of a Deposit can be higher than on a conventional deposit with a minimal risk (as assumed by Depositor’s choice).
Structured products can also be used as a hedging tool. An importer of goods from Europe can invest in a structure which pays an enhanced return should the Euro appreciate. If the investment does well, the importer receives the enhanced return, and can offset this gain against the requirement to buy Euros. If not, then the client is hedged and can buy Euro at lower levels.