Lecture 7 - Structured Deposit

Question 1

What is structured deposit?

Answer 1

It is a combined deposit & investment product where returns depend on the performance of the underlying financial instruments.

Question 2

What should an investor consider before investing in a structured deposit?

Answer 2

• Liquidity
• Returns (cap and participation rates)
• Risks
• Terms & Conditions

Question 3

What are the 4 types of structured deposits?

Answer 3

• Equity-linked
• Bond-linked
• Interest rate-linked
• Credit-linked

Question 4

What is interest rate-linked structured deposit?

Answer 4

• Returns are linked to the formula that makes reference to a specific floating interest rate (e.g. SIBOR)
• Coupon payments quarterly / semi-annually depending on the movement of interest rate
• Risks: direction / pace at which interest rates move

Question 5

What is credit-linked structured deposit?

Answer 5

• Returns are linked to the occurrence of credit event
• Coupon payments quarterly / semi-annually as long as no companies experience a credit event
• Risks: Principal is not protected as customers may lose the whole deposit amount should a credit event occurs

Question 6

What are the 4 common risks?

Answer 6

• Reinvestment risk
• Liquidity risk
• Credit risk
• Performance / Market risk

Question 7

What is the Financial Adviser’s Act (FAA)?

Answer 7

• Structured Deposits are regulated under FAA
• The Financial Advisers are subjected to the Code of Conduct in FAA Guidelines on Structured Deposits
• Only qualified Financial Adviser Representatives and Representatives of Exempt Finance Advisers are allowed to market or provide financial advisory services

Question 8

What kind of information should be disclosed?

Answer 8

• Nature of product
• Details of product provider
• All fees & other charges