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OTC (Over-the-Counter) Derivatives

In the fast changing financial market conditions, to protect against risk and make good use of your assets, OTC Derivative Products at your service!

Transaction Type Underlying Asset
FORWARD Forward
OPTION FX Option,
Dual Currency Deposit,
European Type Option,
Knock In and Knock Out FX Option
OTC Derivatives can include transactions that give right to interchange derivative instruments that depend on price or return of a security or price of a foreign currency or a precious metal or a precious stone or an interest rate and changes in them with derivatives of these instruments and with said underlying assets. Derivatives affect risks that people/institutions are exposed to and enable investors to avoid unwanted risks or even change the direction of risk exposed by using derivatives. Derivatives, as a financial instrument, have below mentioned properties;
  • Derivatives are based on one or more assets, amount and maturity.
  • Investing in derivatives requires much less cost than actual value of the product itself. Example: Option Premium
Derivatives are used with hedging or yield enhancing purposes. DCD (Alternative Currency), FX Option, Gold Option, Forward are the OTC (over-the-counter) derivative products that we offer to our customers. Alternative Currency is compatible with customers whose risk profile is “Very High Risk”. Risk Tolerance Questionnaire and Suitability Test is required to execute transactions in Derivatives.

To find out your risk profile and specify suitable investment products for you with your branch, you can visit and fill Risk Tolerance Questionnaire and Suitability Test.
 

DCD (Alternative Currency)

Alternative Currency: It is an investment product that is a combination of a currency option and a time deposit taken as collateral. With an Alternative Currency option, the customer sells the bank the right to exercise the option in return for enhanced yield by accepting the foreign exchange risks. Alternative Currency product might offer higher returns than regular time deposits if the foreign exchange markets move in line with the customer’s expectations. With Alternative Currency, it is possible to obtain high return by taking exchange rate risk; however the value of the customers' investment at maturity might be less than the amount initially invested (there might be loss of capital in original currency due to exchange rate movements).

Alternative Gold: An investment product that is a combination of a gold option and a time deposit taken as collateral. With a gold option, the customer sells the bank the right to exercise the option in return for enhanced yield by accepting the gold price risks. The customer takes high risk while investing in Alternative Gold product, because of gold price movements, the value of the customers' investment at maturity might be less than the amount initially invested. There might be loss of capital due to gold price movements.

Alternative Currency Plus: It is an investment product that is a combination of a currency option and a time deposit taken as collateral plus an FX option where the customer is the option buyer. With Alternative Currency Plus, the customer sells the bank the right to exercise an option in return for enhanced yield by accepting the foreign exchange risks. Alternative Currency Plus product might offer a higher return than regular time deposits. However, HSBC will determine whether the initial investment of the customer will be paid back in either the currency of the initial investment or the alternate currency at maturity. In Alternative Currency Plus the customer also buys an FX option to enhance yield based on his/her expectations of future foreign exchange rates in addition to the FX option s/he sold to bank. With Alternative Currency Plus, it is possible to have high return by taking exchange rate risk; however the value of the customers' investment at maturity might be less than the amount initially invested (there might be loss of capital in original currency due to exchange rate movements).

Knock-In Barrier Alternative Currency: An investment product that is a combination of a Knock-In Barrier Currency Option and a time deposit taken as collateral. With a currency option, the customer sells the bank the right to exercise the option in return for enhanced yield by accepting the foreign exchange risks. The Knock-In Barrier Currency Option is composed of a vanilla option and a trigger. It is activated automatically if the spot rate touches the trigger during the term. Knock-In Barrier Currency Option expires if the spot rate does not touch the trigger during the term. Knock-In Barrier Alternative Currency is a highest risk level product. The customer takes high risk while investing in Knock-In Barrier Alternative Currency, because of exchange rate movements, the value of the customers' investment at maturity might be less than the amount initially invested. There might be loss of capital due to exchange rate movements.

Knock-Out Barrier Alternative Currency: An investment product that is a combination of a knock-out barrier currency option and a time deposit taken as collateral. With a currency option, the customer sells the bank the right to exercise the option in return for enhanced yield by accepting the foreign exchange risks. The Knock-Out Barrier Currency Option is composed of a vanilla option and a trigger. It expires automatically if the spot rate touches the trigger during the term. Knock-Out Barrier Currency Option is active if the spot rate does not touch the trigger during the term. The customer takes high risk while investing in knock-out barrier alternative currency product, because of exchange rate movements, the value of the customers' investment at maturity might be less than the amount initially invested. There might be loss of capital due to exchange rate movements.
 

Option

Options are contracts that give right to the option buyer to buy or sell a fixed amount of a specific asset (currency, equity, bond, commodity, precious metals etc.) at a predefined strike price on a specific future date without making a commitment. Customer can sell an option to Bank in return of an option premium or buy an option from Bank by paying an option premium depending on his/her will and need.

European FX Option: Foreign Currency Option gives right to the option buyer to buy or sell a fixed amount of one currency in exchange to another currency at a predefined strike price on a specific future date. Option buyer has the right to buy or sell a currency at the agreed level but this is not an obligation. In exchange for this right the option buyer pays option premium to option seller to obtain right. For the transactions where the customer is the option buyer and the bank is the option seller, the customer has the right to exercise the option at maturity date and time stated on the receipt. For the transactions where the customer is the option seller and the bank is the option buyer, the bank has the right to exercise the option at maturity date and time stated on the receipt. FX Option enables option buyer hedging currency risks and gives opportunity to benefit from possible advantageous spot rates at maturity. FX Option enables the option seller to make profit as much as the option premium if foreign exchange markets move in line with the customer’s expectations. FX Option gives the possibility of receiving higher returns by taking foreign exchange risks based on customer's expectations of future foreign exchange rates. If the foreign exchange markets do not move in line with the customer’s expectations option buyer might lose the option premium. Also if the foreign exchange markets do not move in line with the customer’s expectations the option seller might also have loss and the value of the customers' investment at maturity might be less than the amount initially invested.

European Gold Option: Gold Option gives right to the option buyer to buy or sell fixed amount gold in exchange to another currency at a predefined strike price on a specific future date. Option buyer has the right to buy or sell gold at the agreed level but this is not an obligation. In exchange for this right the option buyer pays option premium to option seller to obtain right. For the transactions where the customer is the option buyer and the bank is the option seller, the customer has the right to exercise the option at expiry date and time stated on the receipt. For the transactions where the customer is the option buyer and the bank is the option seller, the customer has the right to exercise the option at expiry date and time stated on the receipt. For the transactions where the customer is the option seller and the bank is the option buyer, the bank has the right to exercise the option at expiry date and time stated on the receipt. Gold Option enables option buyer hedging gold price risks and gives opportunity to benefit from possible advantageous spot rates at maturity. Gold Option enables the option seller to make profit as much as the option premium if gold prices move in line with the customer’s expectations. Gold Option gives the possibility of receiving higher returns by taking gold price risks based on customer's expectations of future gold prices. If the foreign exchange markets do not move in line with the customer’s expectations option buyer might lose the option premium. Also if the gold prices do not move in line with the customer’s expectations the option seller might also have loss and the value of the customers' investment at maturity might be less than the amount initially invested.

Knock-In FX Barrier Option: A Foreign Currency Option gives right to the option buyer to buy or sell a fixed amount of one currency in exchange to another currency at a predefined strike price on a specific future date. Option buyer has the right to buy or sell a currency at the agreed level but this is not an obligation. Knock-In FX Barrier Option is activated automatically if the spot rate touches the trigger during the term. Knock-In FX Barrier Option expires if the spot rate does not touch the trigger during the term and in such a case the option premium paid will be wasted. Knock-In FX Barrier Option gives the option buyer the possibility of receiving higher returns by taking foreign exchange risks based on customer's expectations of future foreign exchange rates. Knock-In FX Barrier Option enables the option seller to make profit as much as the option premium if foreign exchange markets move in line with the customer’s expectations. Knock-In FX Barrier Option gives the possibility of receiving higher returns by taking foreign exchange risks based on customer's expectations of future foreign exchange rates. If the foreign exchange markets do not move in line with the customer’s expectations option buyer might lose the option premium. Also if the foreign exchange markets do not move in line with the customer’s expectations the option seller might also have loss and the value of the customers' investment at maturity might be less than the amount initially invested.

Knock-Out FX Barrier Option: A Foreign Currency Option gives right to the option buyer to buy or sell a fixed amount of one currency in exchange to another currency at a predefined strike price on a specific future date. Option buyer has the right to buy or sell a currency at the agreed level but this is not an obligation. In exchange for this right the option buyer pays option premium to option seller to obtain right. Knock-Out FX Barrier Option is active if the spot rate does not touch the trigger during the term. Knock-Out FX Barrier Option expires automatically if the spot rate touches the trigger during the term and in such a case the option premium paid will be wasted.

Knock-Out FX Barrier Option gives the possibility of receiving higher returns by taking foreign exchange risks based on customer's expectations of future foreign exchange rates. Knock-Out FX Barrier Option enables the option seller to make profit as much as the option premium if foreign exchange markets move in line with the customer’s expectations. Knock-Out FX Barrier Option gives the possibility of receiving higher returns by taking foreign exchange risks based on customer's expectations of future foreign exchange rates. If the foreign exchange markets do not move in line with the customer’s expectations option buyer might lose the option premium. Also if the foreign exchange markets do not move in line with the customer’s expectations the option seller might also have loss and the value of the customers' investment at maturity might be less than the amount initially invested.
 

Forward

Forward FX: A Forward is an agreement governing the purchase or sale of one currency against another at a specified future time at a price agreed upon today. The customer commits to buy or sell the agreed amount of currency with agreed rate at maturity. The customer is obliged to buy or sell the agreed amount of currency with the agreed rate at maturity no matter what the spot rate is at maturity. The customer may use forward transaction for protection or yield enhancement.

Taxation Principles

Please click for 2018 Taxation Principles.