Forwards, futures and options

Futures
Futures are very similar to forward transactions in
many respects. There are a number of differences
between the two, however: first, futures positions
require a margin deposit to be posted and maintained
daily. If a loss is taken on the contract, the
amount is debited from the margin account after the
close of trading. In other words, these futures are
cash settled and no underlying instruments or principals
are exchanged. Secondly, all contract specifications
such as expiration time, face amount, and
margins are determined by the exchange instead of
by the individual trading parties. Finally, the standard
expiration dates are each third Wednesday of March,
June, September, and December. The face amount,
and so the value per basis point for the different
currencies does vary.
The most liquid futures contracts are those involving
USD, EUR, and JPY as the quoted currency. There are,
however, other cross rate contracts that trade very
liquidly as well.
Currency options
Like futures and forwards, options are a way of buying
or selling a currency at a certain point in the future.
An option is a contract which specifies the price at
which an amount of currency can be bought at a
date in the future called the expiration date. Unlike
forwards and futures, the owner of an option does
not have to go through with the transaction if he or
she does not wish to do so. As its name suggests,
an option is a right but not obligation to buy or sell.
Also, unlike forwards or futures, the price at which
the currency is to be bought or sold can be different
from the current forward price. The price at which the
transaction is to be carried out is called the strike price.
There are three main styles of options: Europeanstyle
options can only be exercised on their expiration
date; American-style options can be exercised any

time until the expiration date; exotic options are
options that may involve different payoff structures
and/or exercise features. Exotic FX options are discussed
briefly at the end of this section. The discussion
until that point will concern mainly European options.
There are two main types of options: calls and puts.
The buyer of a call has the right but not the obligation
to buy the underlying asset at the strike price on
or before a specified date in the future. However, the
seller has a potential obligation to sell the underlying
asset at the strike price on or before a specified date
in the future if the holder of the option exercises his
or her right. The buyer of a put has the right but not
the obligation to sell the underlying asset at the strike
price on or before a specified date in the future.
On the other hand, the seller of a put has a potential
obligation to buy the underlying asset at the strike
price on or before a specified date in the future if the
holder of the option exercises his/her right.
In the case of foreign exchange, every currency option
is both a call and a put. For example the buyer of a
EUR call / USD put has the right to buy a face amount
of EUR in exchange for USD, the quantity of USD
being determined by the strike price of the option.
Conversely, this option can be considered as the right
to sell (put) USD for EUR at an exchange rate defined
by the strike price of the option.
Long call Buyer profit/loss Seller profit/loss
Premium pays receives
Maximum loss premium paid unlimited
Maximum profit unlimited premium received
Long put Buyer profit/loss Seller profit/loss
Premium pays receives
Maximum loss premium paid strike minus premium received
Maximum profit strike minus premium received premium received
Call and put
An option is called “at-the-money” if its strike price
is exactly the same as the forward price at which the
underlying is currently trading. A call with a strike
price which is favourable relative to the market price
of the underlying, i.e., less than the market price, is
called “in-the-money.” A call with a strike price that
is greater than the price of the underlying is called
an “out-of-the-money” option.
Value of a EUR call option
The following should be noted: if a call with a given
strike price is in-the-money, then a put with the same
strike price and maturity is out-of-the-money. The
same is true in reverse for an out-of-the-money call.
Value of a USD put option
73
“At,” “in” and “out”
of the money options
0.0500
0.0400
0.0300
0.0200
0.0100
0
1.0850 1.1100 1.1350 1.1600 1.1850 1.2100 1.2350
Forward rate
EUR/USD
Value at
expiry
Out-of-the-money At-the-money In-the-money
0.0500
0.0400
0.0300
0.0200
0.0100
0
1.57 1.58 1.59 1.60 1.61 1.62 1.63
Forward rate
EUR/CHF
Value at
expiry
In-the-money At-the-money Out-of-the-money
74
The buyer of an option pays a premium which
depends primarily on two factors: its value as a forward
contract and its volatility value. For example, an
option that is in-the-money has value as a forward
contract, since if the underlying exchange rate did
not change until after the option’s expiration, then
the option would be worth exercising. However, it is
unlikely that exchange rates will ever stand still for
very long, so that there is the possibility of the option
ending up worth more or less in the future. In particular,
the underlying price might end up below the
strike, so that it is then not worth exercising the call
option. Having the right but not the obligation to
exercise the option protects one from incurring losses.
In fact, the more volatile the exchange rate is, the
more valuable the option is. This is referred to as
volatility value.
While an in-the-money option has both an intrinsic
value and volatility value, at-the-money and out-ofthe-
money options only have volatility value. The
volatility value of an in-the-money call option represents
protection from downward movements of the
underlying price. In the case of out-of-the-money
options the volatility value represents opportunity
to profit from a beneficial movement of the underlying
price. In general, the longer the time until
expiration, the greater is the volatility value of an
option.
Currency options are normally settled in the underlying
instrument. For example if the buyer of a EUR
call / USD put struck at 1.1600 exercises the option,
he/she buys the face amount of EUR at the strike
price and gives the predetermined USD amount to
the seller of the option. Let us assume that the EUR
call/USD put struck at 1.1600 has a face value of
EUR 1 million and the EUR/USD rate is at 1.1900 at
maturity. With the physical settlement, the buyer of
the call will have got a bargain on his or her EUR.
If he or she had to buy the EUR at market price,
The premium of an option
depends on its value as a
forward contract and its
volatility value
Settlement of
currency options
he/she would have to pay USD 1.19 million instead of
the USD 1.16 million paid upon the exercising of the
option.
It is useful now to consider how to value an option.
The value of an option is based on the following six
variables: 1. spot price of the underlying; 2. strike
price; 3. interest rate of the underlying currency;
4. interest rate of the countercurrency; 5. exchange
rate volatility; and 6. time to expiration. By determining
the values of the inputs, the price of an option can be
determined, but it is outside the scope of this publication
to enter here into the details.
Physical settlement
Interest rate derivatives
There is a myriad of interest rate derivatives. However,
it is outside the scope of this booklet to present
a comprehensive list or go into much detail on most
of these. Consequently, some of the main types of
interest rate derivatives will be discussed with a minimum
of detail in this section.
For most major currencies there exist exchange-traded
futures and OTC forwards on various types of
interest rate instruments. For domestic markets this is
true primarily for Treasury securities, such as government
bonds and bills. In the Eurocurrency markets
there are OTC forwards such as Forward Rate Agreements
and swaps, and exchange-traded Eurocurrency
futures. The latter will be described first, but it may
75
Valuing an option
Exchange at strike price: EUR 1 million against USD 1.16 million
USD 1.16 m.
EUR 1 m.
Seller of a
EUR call/USD put
Buyer of a
EUR call/USD put
Forwards and futures
76
be useful to previously define what the term “Euro”
means: if a product in a certain currency is traded
outside its home country, it will be called a Euro
product, such as a Euro future or a Euro option for
example.
A Eurocurrency future is technically a future on a
three-month deposit of an amount that varies by
currency. These futures are traded on the International
Monetary Market (IMM), LIFFE and SIMEX. For
most currencies there are four quarterly expirations:
each 3rd Wednesday in March, June, September
and December. The exception is the USD, which has
monthly expirations.
A Eurocurrency futures strip is a sequence of future
contracts with non-overlapping expirations. Strips are
usually bought in order to hedge when using Eurocurrency
futures. Eurocurrency futures are cash settled
daily, which makes them a better instrument to
hedge an interest rate exposure than a future on
treasury notes or bonds, where the underlying contract
has to be delivered at expiration. However, the
expiration dates and face amounts are fixed by the
exchanges. This makes the futures a less than perfect
instrument for hedging a specific interest rate exposure.
For this reason a Forward Rate Agreement (FRA) may
be concluded with a bank in the OTC market. The
terms of a FRA, such as face amount and expiration,
can be fixed by the two parties involved in the agreement.
This advantage, however, is offset by the fact
that FRAs have credit risk, i.e., reliability of the counterparty
and no margin paid upfront.
An OTC alternative to a futures strip, or a strip of
FRAs, is a swap. An interest rate swap is an agreement
between two counterparties to exchange interest
rate payments. A typical swap involves one party
paying a fixed rate (the swap rate) and the other
A Eurocurrency future is
technically a future on a
three-month deposit
Eurocurrency futures strips
Forward Rate Agreements
(FRAs)
An interest rate swap is an
agreement to exchange
interest rate payments
77
party making payments based on an interest rate that
is reset at the beginning of each period. When entering
into a swap, the net value is usually zero since the
fixed and the floating side are considered to have the
same value. No other payments, such as upfront fees
or premiums, are to be made. For example, one party
might pay in Swiss francs a fixed rate of 3.07%
annually and receive the six month LIBOR rate every
six months for the next five years.
In a swap the payments can be netted, and the face
amount, referred to as the notional principal, is not
exchanged either at the beginning of the swap or
at its maturity. When entering into a swap the following
parameters need to be specified. 1. Start date:
the first day of the period that is covered by the
swap, i.e., spot or some day in the future; 2. end
date: last day covered by swap; 3. notional principal:
basis for calculating the interest rate payments;
4. fixed rate: swap rate, depending on maturity and
market conditions when entering into swap; 5. floating
rate: rate that is reset for every period, usually
3-month or 6-month LIBOR; 6. date of setting for
floating rate: usually two working days prior to
each period; 7. reference rate: how floating rate
is set, i.e. a Reuters page where LIBOR fixings are
published.
Fixed rate
3.07% 30/360
annually
Floating rate
6-month CHF-LIBOR act/360
semiannually
Client Swap CHF 100 m.
over 5 years
UBS
Interest rate swap
Specific parameters need
to be defined when
entering into a swap
78
The main application for a swap is that the payout
of an asset or a liability can be structured in a way
preferred by the holder. For instance, floating rate
debt can be converted into fixed rate debt. The payer
of floating rate debt enters into a swap where he
will receive floating payments, which are passed on
to the holders of the liability, and makes fixed payments
to the counterparty of the swap.
Or, alternatively, a fixed rate debt can be turned into
a floating rate debt when entering into a swap by
receiving fixed and paying floating. There is no point
in describing in detail all the different possibilities of
how a swap can be structured since the permutations
are endless. Here are simply a few more examples:
– a forward swap: starts at some point in the future
– an amortizing swap: notional principal decreases
over time
Fixed rate
3.07% 30/360
annually
Variable rate
6-month CHF-LIBOR act/360
semiannually
Client Swap CHF 100 m.
over 5 years
UBS
CHF 100 m.
Floating rate
debt for 5 years
Variable rate
6-month CHF-LIBOR act/360
plus credit margin
semiannually
Explanation of interest rate swaps
– quanto swaps: payout of floating rate in another
currency than the floating rate index
– an off-market swap: one counterparty receives a
premium upfront and pays a higher rate over time
– swap with a fixed final maturity: two floating
rates, i.e. a 2-year rate against a 5-year rate, both
rates reset every year.
In a cross-currency swap both counterparties exchange
at start date the face amounts in two different
currencies, at spot exchange rate. During the life of
the swap each counterparty makes interest payments
in the currency received. At the end date, both counterparties
make their last interest payment and
exchange the face amounts again at the same condi-
79
at start date
during life
at end date
CHF-Bond Client UBS
CHF-Bond Client
CHF-Bond Client
USD 100
CHF 140
USD fixed
CHF fixed
UBS
UBS
CHF 140
USD fixed
CHF 140
USD 100
CHF fixed
CHF fixed
CHF 140
CHF fixed
face amount
interest payments
Cross-currency swap
Cross-currency swaps
involve the exchange
of 2 currencies
80
tions as at the start date. To illustrate this, consider
the following example: a US-based company issues
a bond in CHF but needs the money in USD. So it
enters into a cross-currency swap where it initially
exchanges the CHF for the preferred USD. During the
life of the bond the company pays interest in USD to
the bank, which in turn pays the CHF interest due
on the bond. At redemption, the bank pays the CHF
interest and the CHF face amount to pay back the
loan, and receives USD from the company.
For the major currencies there are options on literally
all types of interest rates and interest rate products
such as government bonds and swap rates. Interest
rate options can be classified into three groups:
floating rate options, fixed rate options and spread
options.
A cap is a strip of call options on an interest rate: if at
expiration the particular interest rate is greater than
the strike rate of the option, then the owner of the
option receives payment. This payment is received
each time the underlying interest rate is greater than
the strike rate of the option at the set time intervals.
When buying a cap, the following parameters need
to be specified: 1. start date; 2. end date; 3. notional
amount; 4. strike rate; 5. life of the underlying instrument:
6. reference rate. A cap for an interim period
in a multiperiod agreement is also called a caplet.
So, for instance, a cap with an immediate start date,
a maturity of 4 years and a reset interval of 6 months
is composed of 7 caplets – only 7 since the caplet
for the initial period is not calculated. If this first
caplet were out-of-the-money, it would be worthless.
Were it in-the-money, it would be the same as a
deposit since the exact payout would be known.
Let us assume that a firm has to make semi-annual
interest payments, the size of which is determined by
the six-month interest rate prevailing six months
before the payment is due. This borrower is exposed

to the risk of rising interest rates. Consequently, the
firm buys an interest rate cap. Often borrowers with
floating rate debt are not willing to enter into a swap
and pay a fixed rate when the interest rate curve is
normally shaped, meaning the short end is lower
than the long end. They are reluctant to pay the higher
long-term interest rate and therefore prefer to stay
floating. But they will buy a cap for protection
against higher rates. Some will then buy a cap with
a low strike, which is more expensive; others will buy
a cap with a high strike (out-of-the-money) as a sort
of fire insurance policy.
Lenders are usually concerned about interest rates
falling, thus diminishing their investment return. To
protect against falling interest rates, a “floor” can
be purchased. The floor is a portfolio of puts on the
interest rate, with terms similar to those for a cap.
In order to reduce the premium paid for protection,
a buyer of a cap might sell a floor. Such a strategy is
called a collar. The collar part of the name derives
from the fact that the owner of this position will
never pay an interest rate higher than the cap strike,
but also never pays an interest rate below the floor
strike. Hence, the interest rate payment is “collared”
between the floor and cap strikes. The strategy is
called a zero premium collar when the floor has
the same value as the cap. The zero premium part
stems from the fact that the floor paid for the cap.
A collar strategy sets a range for the floating rate
interest payments to be made or received, while
entering into a swap converts floating interest rate
payments to a fixed rate. Another possibility is to
purchase an option to enter into a swap, called a
swaption. Bond options and swaptions are known
as fixed rate options. The first step in defining a
swaption is to specify into what kind of swap it can
be exercised. This could be either of the swaps described
above. There are two types of swaptions:
81
A floor protects against
falling interest rates
A collar involves a buyer of
a cap selling a floor
Fixed rate options
A swaption is the option
to enter into a swap
82
Floating rate options (1)
Floating rate options (2)
Start of the first period End of the last period
0.5
0 Time
1.0 1.5 2.0 2.5 3.0 3.5 4.0
Market rate
%
Cap strike
%
Cap buyer receives the difference between the
market rate and the cap strike from the cap seller
No payment
0.5
0 Time
1.0 1.5 2.0 2.5 3.0 3.5 4.0
Market rate
%
Floor strike
%
Start of the first period
Floor buyer receives the difference between the
market rate and the floor strike from the floor seller
No payment
End of the last period
83
payer’s swaptions and receiver’s swaptions. If the
buyer of the swaption has to pay a fixed interest rate
when the option is exercised, then it is known as a
payer’s swaption. If he/she can receive the fixed rate,
however, then it will be called a receiver’s swaption.
In addition the expiry date, i.e. when the swaption
is exercised (usually two business days before start
date of the swap) and the settlement type must be
defined. There are two types of settlement: cash
or physical. With physical settlement the buyer of a
swaption exercises into a real swap position. With
cash settlement, the buyer and the seller have to
agree on how the value of the swaption is determined
when it expires in-the-money. The trader then
usually has to contact several banks and ask for the
swap rate relating to the underlying swap. The net
present value is then calculated from the average of
these quotes.
To see why a swaption is equivalent to a bond option,
suppose that a company has floating rate liabilities
worth CHF 200,000,000. Although the company is
satisfied with the current level of interst rates, it is concerned
that they could suddenly rise. To reduce its
exposure, the firm buys a payer’s swaption on CHF 500
million. This swaption gives the firm the right to pay
a predetermined fixed rate on 25% of its debt. The
firm could just as easily have bought a put on a bond.
The put could be made out to a face value of
CHF 500 million at a price determined by the swap
rate.
Spread options are options whose returns vary according
to the difference between two interest rates,
either in the same currency or in different currencies.
For example, an option can be bought to receive the
difference between the one-year USD interest rate
and the five-year USD interest rate in six months
time. An example for the latter would be an option
on the difference between the EUR and CHF five-year
Spread options
84
interest rates. The former are more often used by
bond fund managers, while the latter are used by
both bond fund managers and managers of debt
portfolios in different currencies.
As with currency options, exotic options also exist on
interest rates.
Below are a few examples:
– chooser cap: instead of buying a normal cap
with for example 10 caplets the buyer only has
the right to the payout of 5 caplets, which can
be freely chosen.
– knock-out cap: if the interest rate at fixing date of
a caplet is above the outstrike, there is no payout
for this caplet.
– digital option (bet option): the owner receives
at expiry either nothing or a certain fixed amount.
– contingent swaption: the swaption buyer only
has to pay the premium when the swaption
expires in-the-money.
Exotic options
The term exotic options is normally used for types of
options which are not standard in the same way as
European or American calls and puts. For a Europeanstyle
option all that matters is whether or not an option
has a favourable strike price compared to the
underlying market price at expiration. Unlike “plain
vanilla” options (i.e. standard options), exotic options
have additional features.
These additional features of exotic options almost
always originated from a specific requirement on the
part of an end user. Option providers combine a
customer’s interests with their own to create what is
usually a cheaper option than the standard option
due to the different, or adjusted, risk profile. The
market for exotic options is growing rapidly and is
extremely innovative, as the already broad range of
products shows (see chart on next page).
Exotic options
The term “exotic”
is used for options which
are not standard
85
Out options Knock out, kick out,
Double knock out
Barrier options
In options Knock in, kick in,
Double kick in
Exotics Directional Digital call & put
European triggers
Range Range digital
Payout options
Directional Lock in, lock out,
one touch
American triggers
Range Double lock out,
Double lock in
Basket options
Additional options
Average Rate
Options (ARO)
Compounds
86
Knock out option
Automatically terminates if the spot reaches
the outstrike before maturity.
Spot travels in the out-of-the-money direction
in order to reach strike.
Knock out costs less than the standard option
with the same strike.
Automatic payout of a fixed amount at maturity
if spot trades at or between the predefined
outstrikes before maturity.
Simple way of selling volatility.
Also used as part of structured products.
Double lock out option
100 105 110
8
3
– 2
100 105 110
8
3
– 2
Strike price
87
The following examples involving barrier options
should help illustrate how exotic options work.
Barrier options are similar to standard options except
that they have an additional feature. This feature
is the barrier which either cancels or activates the
option. Due to this barrier the option premium is
lower than that of a comparable plain vanilla option.
The following are examples of barrier options:
In addition to the strike level, the out option has a
predetermined barrier level (the “outstrike”). If the
underlying breaches the barrier level the option is
automatically terminated. If the outstrike is never
touched the payoff of the out option will be the
same as that of the equivalent standard option. As
an example, a knock out option is explained above.
In addition to the strike level, the in option has a predetermined
barrier level (the “instrike”). The option
is only valid if the instrike is reached during the life of
the option. Once the instrike is hit the in option becomes
a standard option.
Payout options pay a fixed amount if a certain level
is reached (lock in option) or, alternatively, if a certain
level is not reached (lock out option). Above is an
example of a double lock out option. As long as EUR/
USD stays between 1.06-1.26 during the life of the
option (i.e., neither barrier is reached) the buyer of the
option will receive the prespecified payout amount.
If either level is reached, the option is worthless and
expires.
Structured products
Structured products give investors the opportunity to
enhance the performance of their portfolios by harnessing
fluctuations in the currency markets. Unlike
other types of investment, they also constitute good
diversification vehicles. Structured products can be
broken down into:
Barrier options contain a
barrier which cancels or
activates the option
Out option
In option
Payout option
88
• Capital-protected products (GROIs)
• Non-capital-protected products (DOCUs, BLOCs)
A GROI is an exchange-rate-related investment instrument
that secures the buyer a higher return than
on money market investments. The capital invested
and, depending on the product selected, a minimum
rate of interest are repaid in their entirety. Furthermore,
the investor participates in a rising, falling or
even stagnating market for a currency pair. In order
to do this, he or she has to renounce part or all of the
short-term interest. If the investor has guessed the
direction of the market correctly, he or she will enjoy
a maximum return. The individual risk/return profile
determines the level of participation in exchange rate
fluctuation as well as the level of capital protection.
Types of GROIs:
A GROI can contain all different types of options and,
as a result, can be geared to specific client requirements
or the market consensus. We break GROIs
down into:
GROIs (Guaranteed Return
On Investment)
GROI products
with unlimited
earnings potential
(calls, puts,
knock outs, etc.)
with limited
earnings potential
(call/spreads,
kick outs, etc.)
with fixed
earnings potential
(double lock out,
one touch, digital, etc.)
Example of a range GROI:
Initial situation: An investor has USD and wants to
enhance his return versus the 3-month USD rate of
interest, which stands at 4.8% p.a. He expects the
USD/CHF exchange rate to hold steady over the next
three months (spot: CHF 1.5000 per USD 1).
Strategy: invest in a range GROI; 100% capital protection;
minimum interest of 1% p.a.; maximum
interest of 8% p.a.; range of CHF 1.4400–1.5600
per USD 1.
Analysis at maturity: If the USD/CHF exchange
rate remains within the range of 1.4400–1.5600
during the term of the GROI, the investor will receive
his capital plus interest of 8% p.a. If, however, the
USD/CHF exchange rate moves outside or touches
this range, the investor will receive the capital he has
invested plus the minimum interest rate of 1% p.a.
89
8.0% p.a.
GROI
1.0% p.a.
0.0% p.a.
1.4400
Spot 1.5000
1.5600 USD/CHF
90
DOCUs are structured forex-linked products that have
some of the features of fixed-income investment instruments
and whose return depends on how a
certain exchange rate develops. DOCUs guarantee a
rate of interest that is always well above that offered
by an ordinary money market investment in the respective
base currency. The currency of the repayment
is determined by an exchange rate at maturity. The
capital invested is either paid out together with interest
in the base currency or converted into the second
currency at a pre-arranged rate and then paid out to
the investor.
DOCUs are available in almost all currency pairs, with
a wide range of strike prices, levels of returns, maturity
structures and terms. This flexibility allows DOCUs
to be tailored to specific client requirements.
Example of a DOCU:
Initial situation: An investor has USD and wants to
enhance the yield he will enjoy versus the 3-month
CHF rate of interest, which stands at 1% p.a. He
expects the USD/CHF exchange rate to hold steady or
rise slightly over the next three months (spot: CHF
1.5000 per USD 1).
Strategy: invest in a DOCU with a guaranteed rate
of interest of 5% p.a. and a strike price of CHF 1.4600
per USD 1.
Analysis at maturity:
• If the USD/CHF exchange rate is above the strike
price on the day the DOCU expires, the investor
will receive a payout in CHF comprising the capital
he invested plus 5% interest p.a.
• If the USD/CHF exchange rate is below the strike
price on the day the DOCU expires, the investor
will receive a payout comprising the capital he
invested plus 5% interest p.a., converted into USD
at a pre-arranged strike price.
DOCUs
(Double Currency Unit)
BLOCs are a good alternative to direct currency investments
if the investor is expecting exchange rates to
move sideways or rise slightly. Unlike direct investments,
BLOCs allow investors to harness a rise in
the spot rate, with leverage, up to the cap level. The
amount paid back to the investor depends on the
exchange rate at maturity. If, at maturity, the exchange
rate is above the cap level, the investor will
receive an amount for each BLOC security that is in
line with the cap level. If, at maturity, the exchange
rate is below the cap level, the investor will receive a
unit of the underlying currency for each BLOC security.
The FX-BLOC certificates offered by UBS Investment
Bank can be bought and sold freely in the secondary
market up until the maturity date. BLOCs can be issued
in almost all currency pairs and for almost all maturity
periods.
Example of a BLOC:
Initial situation: An investor has USD and wants to
enhance his return versus the 6-month USD rate of
interest, which stands at 5% p.a. He expects the
91
5.0% p.a.
DOCU
0.0% p.a.
Break-even
1.4420 1.4600
Spot 1.5000
USD/CHF
BLOCs (Buy Low Or Cash)
EUR/USD exchange rate to rise slightly over the next
six months (spot: USD 1.0650 per EUR 1).
Strategy: buy a BLOC with USD 1.1050 cap per
EUR 1; price: USD 1.0350, maximum yield 13.5% p.a.
Analysis at maturity:
• If the EUR/USD exchange rate is above or at cap
level at maturity, a cash payment of USD 1.1050
will be made per certificate (corresponds to a maximum
yield of 13.5% p.a.).
• If the EUR/USD exchange rate is below cap level at
maturity, the investor will receive one euro per
BLOC certificate. In the worst case scenario, the
investor has acquired one euro at a better price
(USD 1.0350) than would have been available with
a forward rate at maturity date.
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