Premium Currency Investment offers higher interest rates and potential gains from FX fluctuations
from dual-currency investment
interest potentially higher on a short-term investment
A PCI is a structured – or customized – investment product that is linked to a pair of currencies. The tenor of a PCI can range from one week to three months. It is ideal when you want to:
Let’s assume you have funds of SGD100,000 and you don’t mind holding AUD.
Let’s say the Spot Exchange Rate between these two currencies is 1.2200. However, preferring to be more conservative you set a Target Conversion Rate (TCR) of 1.2150.
As you don’t need the funds for the next month, you choose a one-month tenor.
At this stage, we will inform you of the guaranteed interest rate that you will enjoy. In this case, let’s assume it is 8% p.a.
On Fixing Day (two business days before maturity), it will be determined whether your funds plus the guaranteed interest will be repaid in SGD or AUD.
|SGD weakens against AUD, compared to the TCR you have set. It now trades at 1.2250.||SGD strengthens against AUD to TCR or beyond the TCR that you have set. It now trades at 1.2050.|
|You will receive:
One-month’s interest in SGD.
|You will receive:
One-month’s interest in AUD converted at TCR of 1.2150.
(1/12 x 8% x 100,000)
(100,000 + 667) ÷ 1.2150
(if converted at AUD/SGD spot of 1.2050 at expiry, SGD equivalent is SGD99,838, a shortfall of SGD162)The actual profit/shortfall is dependent on the spot AUD/SGD at expiration.
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