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Hedge interest rate and FX risk

Cross Currency Swap (CCS) is a legal agreement between two parties to exchange interest rate obligations or receipts in different currencies for periods generally ranging from 1 to 10 years.

• A currency swap is similar to an interest rate swap but involves the exchange of two different currencies
  
• While an IRS hedges interest rate risk, Cross Currency Swap hedge interest rate and FX risk
  

Swap in 3 steps

• Exchange of principal
  In the basic currency swap the two counterparties agree to the immediate exchange of one currency for another.
  
• Exchange of interest rate obligations
  The second step is for the two counterparties to exchange interest payments. This usually involves one counterparty paying fixed interest rates and the other paying floating rates.
  
• Re- exchange of re-exchange of principals
  In the final step the two principals are re-exchanged at the original spot rate.

Hedge FX volatilities and risks

Currency Option is a contract between 2 parties where the buyer of the contract receives the right but not the obligation to buy/sell a currency at a specific price on a specific date.

The main purpose is for corporate or commercial customers to hedge FX volatilities/risk.

Manage your interest rate exposure

An interest rate option gives you the right but not the obligation to fix the interest rate on a future loan or deposit for a pre-determined amount that starts on an agreed future date and is for a specified term.

IRO allows a company to actively manage its interest rate exposure by providing a form of ‘insurance’ against adverse market moves while still allowing you to benefit from favourable market moves.

Like all insurance, a premium is paid for that protection. The 3 basic structures include:

• Interest Rate Cap
  
• Interest Rate Floor
  
• Collar

Hedge against unfavourable interest rates

Interest Rate Swap (IRS) is an agreement between 2 parties to make interest payments to each other on agreed interest payment dates based upon a notional amount of principal

How it works
Typically, one party will pay a Fixed rate, the other will pay the floating rate (such as KLIBOR) in the same currency. The swap is based on a notional principal, generally for periods of 1 to 10 years.

Potential users include borrowers, investors, fund managers and finance / leasing companies. A precondition for IRS includes RHB's credit approval and signing of ISDA & CSA documentation and Board of resolution.

Improve your bottom line

Structured forwards are synthetic forwards that use currency options to replicate a forward hedge position. Most of the Structured Forwards are structured as a zero cost product.

What it is
It is a flexible FX tailor-made hedging mechanism that allows you to express a view on the currency movement that potentially best fits your expectation and requirement. Unlike conventional forward hedging which is static in nature, Structured Forwards offers a new dimension of dynamic hedge to manage the market risk, hence potentially improve the bottom line of the company.

Availability
Once the view of currency and hedging requirements are established you can select one of the following structures below that best fit your requirements.

There are 6 types of Structured Forwards available for you to pick and choose:

1. Target Forward
   
2. Range Forward
   
3. Participating Forward
   
4. Subsidised Forward
   
5. Forward Extra
   
6. Knock out Forward

A principal-protected investment with embedded derivatives

The performance of the embedded derivatives will determine the interest payable for the investment. At the inception of the investment, the Investor agrees to the underlying currency pair, the Strike Rates and the Tenor. The Strike Rates are pre-determined exchange rates of the currency pair.

CSSI has two Strike Rates, the Upper Strike Rate and Lower Strike Rate. If the Fixing Spot Rate (the prevailing exchange rate of the currency pair at 1400 hours Kuala Lumpur local time) is equal to or more than (>) the Upper Strike Rate, the Investor will receive the Maximum Interest Rate on maturity. If the Fixing Spot Rate of the currency pair is equal to or less than (<) the Lower Strike Rate, the Investor will receive the Minimum Interest Rate on maturity. The CSSI also provides the Investor with participation in the strengthening of the chosen currency in the currency pair whereby if the Fixing Spot Rate of the currency pair is above (>) the Lower Strike Rate but below (<) the Upper Strike Rate, the Investor will receive interest at a rate which is more than the Minimum Interest Rate but less than the Maximum Interest Rate based on a fixed formula.

The Interest payable for the CSSI will be determined based on the Fixing Spot Rate of the currency pair at 1400 hours Kuala Lumpur local time on the Expiry Date. Please take note that the Minimum Interest Rate could be zero based on the terms of the particular CSSI.

for Redemption at Maturity

Investor will receive the Minimum, Maximum or the Participating Interest Rate from this investment. The following are illustrations of the possible outcome from this investment:

Scenario 1: USD/MYR trades less than the Lower Strike Rate of 3.1800 at 2pm KL time on the Expiry Date (7 Oct 2014), for example USD/MYR trades at 3.1500. Investor will receive the Minimum Interest Rate of 1% p.a. plus the initial Investment Amount of MYR 100,000 on the Maturity Date (9 Oct 2014):

Investment Amount + (Investment Amount x Minimum Interest Rate x Tenor/Day Count Convention)
= MYR 100,000 + (MYR 100,000 x 1% x 120/365)
= MYR 100,000 + MYR 328.77
= MYR 100,328.77

Scenario 2: USD/MYR trades more than the Upper Strike Rate of 3.3100 at 2pm KL time on the Expiry Date (7 Oct 2014), for example USD/MYR trades at 3.3500. Investor will receive the Maximum Interest Rate of 8% p.a. plus the initial Investment Amount of MYR 100,000 on the Maturity Date (9 Oct 2014):

Investment Amount + (Investment Amount x Maximum Interest Rate x Tenor/Day Count Convention)
= MYR 100,000 + (MYR 100,000 x 8% x 120/365)
= MYR 100,000 + MYR 2630.14
= MYR 102,630.14

Scenario 3: USD/MYR trades between the Lower Strike Rate and the Upper Strike Rate (3.1800 - 3.3100) at 2pm KL time on the Expiry Date (7 Oct 2014), for example USD/MYR trades at 3.2500. Investor will receive the Participating Interest Rate of 6.32% p.a. plus the initial Investment Amount of MYR 100,000 on the Maturity Date (9 Oct 2014):

Enhanced Yield:
= (Fixing Spot Rate – Lower Strike Rate) x Beta x Day Count Convention/Tenor
= (3.2500 – 3.1800) x 0.2500 x 365/120
= 5.32

Participating Interest Rate
= Minimum Interest Rate + Enhanced Yield* = 1% + 5.32% = 6.32%

Investment Amount + (Investment Amount x Participating Interest Rate x Tenor/Day Count Convention)
= MYR 100,000 + (MYR 100,000 x 6.32% x 120/365)
= MYR 100,000 + MYR 2077.81
= MYR 102,077.81

Scenario 4: On 25 July 2014, which is before the Maturity Date, the Investor decides to cancel their investment. The actual amount to be returned to the Investor will be adjusted for any unwinding cost arising from the early termination. The Investor may receive an amount less than their initial Investment Amount:

Investor receives MYR 96,850 which is less than the initial Investment Amount of MYR 100,000 due to the deduction of unwinding cost on premature withdrawal.

PLEASE TAKE NOTE: The above simulations are being provided for illustrative purposes only and are not a forecast or indication of any expectation or performance. It does not represent actual termination or unwind prices that may be available to you. It does not present all possible outcomes or describe all factors that may affect the value of the transaction.

for Redemption at Maturity

The performance of the embedded derivative will determine the interest payable for the investment. At the inception of the investment, the Investor agrees to the underlying currency pair for the Digital Option and the 'Trigger Rate'. The Trigger Rate which is fixed upfront is the exchange rate for the currency pair which determines whether the Investor will receive a minimum or maximum interest on the Maturity Date. The terms of the particular Digital Option may provide for a Trigger Rate which is either higher than or lower than the Spot Rate on the Trade Date. If the Trigger Rate is fixed upfront as higher than the Spot Rate on the Trade Date, the Investor will receive the maximum interest rate if the Spot Rate at 2pm KL time on Expiry Date is higher than the Trigger Rate. Otherwise, the minimum interest rate will be paid to the Investor. If on the other hand, the Trigger Rate is fixed upfront as lower than the Spot Rate on the Trade Date, the Investor will receive the maximum interest rate if the Spot Rate at 1400 hours Kuala Lumpur local time on Expiry Date is lower than the Trigger Rate. Otherwise, the minimum interest rate will be paid to the Investor. In either case if the Spot Rate at 1400 hours Kuala Lumpur local time on the Expiry Date is equal to the Trigger Rate, the minimum interest rate will be paid to the Investor. Please take note that the minimum interest rate can be zero depending on the terms of the particular Digital Option.

The initial Investment Amount is protected only if the investment is held until maturity.

for Redemption at Maturity

Customer will receive either the maximum or the minimum interest from this investment. The following are illustrations of the possible outcomes from this investment:

Scenario 1: (If the Trigger Rate is fixed upfront as higher than the Spot Rate on Trade Date at 6.02)

USD/CNH trades lower than the Trigger Rate of 6.02 at 2pm KL time on the Expiry Date (29 Dec 2014). Investor will receive the minimum interest rate of 2% p.a. plus the initial Investment Amount of USD 100,000 on the Maturity Date (31 Dec 2014):

Investment Amount + (Investment Amount x Minimum Interest Rate x Investment Tenor/Day Count Convention)
= USD 100,000 + (USD 100,000 X 2.00% X 279/360)
= USD 100,000 + USD 1550
= USD 101,550

Scenario 2: (If the Trigger Rate is fixed upfront as higher than the Spot Rate on Trade Date at 6.02)

USD/CNH trades higher than the Trigger Rate of 6.02 at 2pm KL time on the Expiry Date (29 Dec 2014). Investor will receive the maximum interest rate of 5% p.a. plus the initial Investment Amount of USD 100,000 on the Maturity Date (31 Dec 2014);

Investment Amount + (Investment Amount x Maximum Interest Rate x Investment Tenor/Day Count Convention)
= USD 100,000 + (USD 100,000 X 5.00% X 279/360)
= USD 100,000 + USD 3875
= USD 103,875

Scenario 3: On 1 July 2014, which is before the Maturity Date, Investor decides to cancel their investment. The actual amount to be returned to the Investor will be adjusted for any unwinding cost arising from the early termination. The Investor may receive an amount less than their initial Investment Amount:-

Unwinding Cost for premature termination/cancellation:

Investor receive USD 99,400 which is less than the initial Investment Amount of USD 100,000 due to deduction of unwinding cost on premature withdrawal

Scenario 4: If the Trigger Rate is fixed upfront as lower than the Spot Rate on Trade Date at 5.90

USD/CNH trades higher than the Trigger rate of 5.90 at 2pm KL time on the Expiry Date (29 Dec 2014), for example USD/CNH trades at 5.92. Investor will receive the minimum interest rate of 2% p.a. plus the initial Investment Amount of USD 100,000 on the Maturity Date (31 December 2014):

Investment Amount + (Investment Amount x Minimum Interest Rate x Investment Tenor/Day Count Convention)
= USD 100,000 + (USD 100,000 X 2.00% X 279/360)
= USD 100,000 + USD 1550
= USD 101,550

Scenario 5: If the Trigger Rate is fixed upfront as lower than the Spot Rate on Trade Date at 5.90

USD/CNH trades lower than the Trigger rate of 5.90 at 2pm KL time on the Expiry Date (29 Dec 2014), for example USD/CNH trades at 5.87. Investor will receive the maximum interest rate of 5% p.a. plus the initial Investment Amount of USD 100,000 on the Maturity Date (31 December 2014):

Investment Amount + (Investment Amount x Maximum Interest Rate x Investment Tenor/Day Count Convention)
= USD 100,000 + (USD 100,000 X 5.00% X 279/360)
= USD 100,000 + USD 3875
= USD 103,875

PLEASE TAKE NOTE: The above simulations are being provided for illustrative purposes only and are not a forecast or indication of any expectation or performance. It does not represent actual termination or unwind cost that may be available to you. It does not present all possible outcomes or describe all factors that may affect the value of the transaction.

A principal-protected investment with embedded reference derivative

Double No-Touch Structured Investment (‘Double No-Touch’) is a principal-protected investment with an embedded reference derivative. The performance of the embedded derivative will determine the interest payable for the investment. At the inception of the investment, the Investor agrees to the underlying currency pair for the Double No-Touch and the ‘Range’. The Range which is fixed upfront is a set of exchange rates of the currency pair which forms the upper and lower limit for the Double No-Touch. The Range determines whether the Investor will receive a Minimum or Maximum Interest Rate on the Maturity Date. If the Spot Rate of the currency pair stays within the Range (i.e. lower limit < Spot Rate < upper limit) at all times during the Observation Period, the Investor will receive the Maximum Interest Rate. If the Spot Rate of the currency pair equals to the upper or lower limit (OR moves outside of the Range i.e. Spot Rate ≥ upper limit OR Spot Rate ≤ lower limit) at any time during the Observation Period, the Investor will receive the Minimum Interest Rate. The Observation Period for the Double No-Touch starts from the Trade Date and continues 24 hours each day during the Tenor of the Double No-Touch until 2pm KL time on Expiry Date. Please take note that the Minimum Interest Rate can be zero depending on the terms of the particular Double No-Touch Investment.

The initial Investment Amount is protected only if the investment is held until maturity.

for Redemption at Maturity

Customer will receive either the maximum or the minimum interest from this investment. The following are illustrations of the possible outcome from this investment:

Scenario 1: USD/CNH moves outside the Range of 6.03 - 6.30 (i.e. Spot Rate for USD/CNH is 6.00 on 3 July 2014) within the Observation Period starting on the Trade Date (25 March 2014) until 2pm KL time on the Expiry Date (29 December 2014). Investor will receive the Minimum Interest Rate of 1% p.a. plus initial Investment Amount of USD 100,000 on the Maturity Date (31 Dec 2014).

= Investment Amount + (Investment Amount x Minimum Interest Rate x Investment Tenor/Day Count Convention)
= USD 100,000 + (USD 100,000 X 1.00% X 279/360)
= USD 100,000 + USD 775
= USD 100,775

Scenario 2: USD/CNH stays within the Range of 6.03 – 6.30 (i.e. 6.03 < Spot Rate < 6.30) at all times during the Observation Period from Trade Date (25 March 2014) until Expiry Date (29 Dec 2014) at 2pm KL time. Investor will receive the Maximum Interest Rate of 6% p.a. plus the initial Investment Amount of USD 100,000 on the Maturity Date (31 December 2014):

Investment Amount + (Investment Amount x Maximum Interest Rate x Investment Tenor/Day Count Convention)
= USD 100,000 + (USD 100,000 X 6.00% X 279/360)
= USD 100,000 + USD 4650
= USD 104,650

Scenario 3: On 1 July 2014, which is before the Maturity Date, Investor decides to cancel the investment. The actual amount to be returned to the Investor will be adjusted for any unwinding cost arising from the early termination. The Investor may receive an amount less than the initial Investment Amount:-

Unwinding Cost for premature termination/cancellation:

Investor receive USD 99,400 which is less than the initial Investment Amount of USD 100,000 due to deduction of unwinding cost on premature withdrawal.

PLEASE TAKE NOTE: The above simulations are being provided for illustrative purposes only and are not a forecast or indication of any expectation or performance. It does not represent actual termination or unwind cost that may be available to you. It does not present all possible outcomes or describe all factors that may affect the value of the transaction.

Principal-protected investment with embedded reference derivative.

The performance of the embedded derivative will determine the interest payable for the Investment. At the inception of the Investment, the Investor agrees to the underlying currency pair for the One-Touch and the 'Trigger Rate'. The Trigger Rate which is a fixed upfront is the exchange rate of the currency pair which determines whether the Investor will receive the minimum or maximum interest on the Maturity Date. If the Spot Rate of the currency pair touches or equals to the Trigger Rate at any point in time during the Observation Period, the Investor will receive the Maximum Interest Rate. Otherwise, the Minimum Interest Rate will be paid to the Investor. The Observation Period for the One-Touch starts from the Trade Date and continues 24 hours each day until 1400 hours Kuala Lumpur local time on the Expiry Date. Please take note that the Minimum Interest Rate can be zero depending on the terms of the particular One-Touch Investment.

The initial Investment Amount is protected only if the investment is held until maturity.

for Redemption at Maturity

The following scenarios are meant for illustration purposes and do not reflect the current or future market trends.

Scenario 1: USD/CNH does not touch or does not equal to the Trigger Rate of 6.02 during the Observation Period from Trade Date (25 March 2014) until 2pm KL time on Expiry Date (29 December 2014). On the Maturity Date (31 December 2014), the Investor receives the Minimum Interest Rate of 2% p.a. plus the initial Investment Amount:-

Investment Amount + (Investment Amount x Minimum Interest Rate x Investment Tenor/Day Count Convention)
= USD 100,000 + (USD 100,000 X 2.00% X 279/360)
= USD 100,000 + USD 1,550
= USD 101,550

Scenario 2: USD/CNH touches or equals to the Trigger Rate of 6.02 on 3 July 2014 (within the Observation Period). On the Maturity Date, the Investor receives the Maximum Interest Rate of 4% p.a. plus the initial Investment Amount:-

Investment Amount + (Investment Amount x Maximum Interest Rate x Investment Tenor/Day Count Convention)
= USD 100,000 + (USD 100,000 X 4.00% X 279/360)
= USD 100,000 + USD 3,100
= USD 103,100

Scenario 3: On 1 July 2014, which is before the Maturity Date, the Investor decides to cancel their investment. The actual amount to be returned to the Investor depends on the Spot Rate of the currency pair less any unwinding cost arising from the cancellation. The Investor may receive an amount less than their initial investment:-

Unwinding Cost for premature termination/cancellation: 

The Investor receives USD 99,100 which is less than the initial Investment Amount of USD 100,000 due to deduction of unwinding cost on premature withdrawal.

PLEASE TAKE NOTE: The above simulations are being provided for illustrative purposes only and are not a forecast or indication of any expectation or performance. It does not represent actual termination or unwind cost that may be available to you. It does not present all possible outcomes or describe all factors that may affect the value of the transaction.

A principal-protected investment with embedded derivatives

The performance of the embedded derivatives will determine the interest payable for the investment. At the inception of the investment, the Investor agrees to the underlying currency pair, the Strike Rates and the Tenor. The Strike Rates are pre-determined exchange rates of the currency pair.

PSSI has two Strike Rates, the Upper Strike Rate and Lower Strike Rate. If the Fixing Spot Rate (the prevailing exchange rate of the currency pair at 1400 hours Kuala Lumpur local time) is equal to or less than (<) the Lower Strike Rate, the Investor will receive the Maximum Interest Rate on maturity. If the Fixing Spot Rate of the currency pair is equal to or more than (>) the Upper Strike Rate, the Investor will receive the Minimum Interest Rate on maturity. The PSSI also provides the Investor with participation in the weakening of the chosen currency in the currency pair whereby if the Fixing Spot Rate of the currency pair is above (>) the Lower Strike Rate but below (<) the Upper Strike Rate, the Investor will receive interest at a rate which is more than the Minimum Interest Rate but less than the Maximum Interest Rate based on a fixed formula.

The Interest payable for the PSSI will be determined based on the Fixing Spot Rate of the currency pair at 1400 hours Kuala Lumpur local time on the Expiry Date. Please take note that the Minimum Interest Rate could be zero based on the terms of the particular PSSI.

for Redemption at Maturity

Investor will receive the Minimum, Maximum or the Participating Interest Rate from this investment. The following are illustrations of the possible outcome from this investment: 

Scenario 1: USD/MYR trades more than the Upper Strike Rate of 3.3100 at 2pm KL time on the Expiry Date (7 Oct 2014), for example USD/MYR trades at 3.3500. Investor will receive the Minimum Interest Rate of 1% p.a. plus the initial Investment Amount of MYR 100,000 on the Maturity Date (9 Oct 2014):

Investment Amount + (Investment Amount x Minimum Interest Rate x Tenor/Day Count Convention)
= MYR 100,000 + (MYR 100,000 x 1% x 120/365)
= MYR 100,000 + MYR 328.77
= MYR 100,328.77

Scenario 2: USD/MYR trades less than the Lower Strike Rate of 3.1800 at 2pm KL time on the Expiry Date (7 Oct 2014), for example USD/MYR trades at 3.1500. Investor will receive the Maximum Interest Rate of 8% p.a. plus the initial Investment Amount of MYR 100,000 on the Maturity Date (9 Oct 2014):

Investment Amount + (Investment Amount x Maximum Interest Rate x Tenor/Day Count Convention)
= MYR 100,000 + (MYR 100,000 x 8% x 120/365)
= MYR 100,000 + MYR 2630.14
= MYR 102,630.14

Scenario 3: USD/MYR trades between the Lower Strike Rate and the Upper Strike Rate (3.1800 - 3.3100) at 2pm KL time on the Expiry Date (7 Oct 2014), for example USD/MYR trades at 3.2500. Investor will receive the Participating Interest Rate of 5.56% p.a. plus the initial Investment Amount of MYR 100,000 on the Maturity Date (9 Oct 2014):

Investment Amount + (Investment Amount x Participating Interest Rate x Tenor/Day Count Convention)
= MYR 100,000 + (MYR 100,000 x 5.56% x 120/365)
= MYR 100,000 + MYR 1827.95
= MYR 101,827.95

Scenario 4: On 25 July 2014, which is before the Maturity Date, the Investor decides to cancel their investment. The actual amount to be returned to the Investor will be adjusted for any unwinding cost arising from the early termination. The Investor may receive an amount less than their initial Investment Amount:

Investor receives MYR 96,000 which is less than the initial Investment Amount of MYR 100,000 due to the deduction of unwinding cost on premature withdrawal.

PLEASE TAKE NOTE: The above simulations are being provided for illustrative purposes only and are not a forecast or indication of any expectation or performance. It does not represent actual termination or unwind prices that may be available to you. It does not present all possible outcomes or describe all factors that may affect the value of the transaction.

A principal protected investment with an embedded derivative

At the inception of the investment, the Investor agrees to the Reference Interest Rate and its Range. The Reference Interest Rate can be based on any interest rate index (such as 3 month KLIBOR, 6 month SIBOR or other reference index) and the Range is the upper and lower limit for the movement of interest rates of the chosen index during the tenor of the investment. The performance of the Reference Interest Rate will be determined on a daily basis during the Observation Period. The Interest payable on the investment will be paid on each Interest Payment Date determined by the actual number of days the Reference Interest Rate stays within the Range (Lower Limit ≤ Reference Interest Rate ≤ Upper Limit) for each Observation Period.

If the Reference Interest Rate stays within the Range every day of the Observation Period, the Investor will receive the Maximum Interest Rate. If the Reference Interest Rate stays outside the Range every day during the Observation Period, the Investor will receive the Minimum Interest Rate. If the Reference Interest Rate moves within and outside of the Range during the Observation Period, the Investor will receive a Participating Interest Rate which is more than the Minimum Interest Rate but lower than the Maximum Interest Rate based on the total number of days the Reference Interest Rate stays within the Range during the Observation Period. Please take note that the Minimum Interest Rate can be zero depending on the terms of the particular IR-Range Accrual.

Depending on the terms of the particular FX-Range Accrual, it may include a Callable feature which gives RHB Bank the right to terminate the FX-Range Accrual on any Interest Payment Date prior to the Maturity Date and return the initial Investment Amount together with any interest due up to the Call Date to the Investor. The initial Investment Amount is protected only if the investment is held until maturity or in the event of a Call prior to maturity.

The initial Investment Amount is protected only if the investment is held until maturity or in the event of a Call prior to maturity.

for Redemption at Maturity

Investor will receive the Minimum, Maximum or the Participating Interest Rate from this Investment. The following are illustrations of the possible outcome from this Investment:

The Interest Amount is payable in the Investment Currency and is calculated based on the following formula:

Investment Amount x [(Rmin) + (Rmax – Rmin) x n*/N**] x Actual number of days/ Day Count Convention***

*n = Number of days in which the Reference Interest Rate stays within the Range for each Observation Period

**N = Number of days in the Observation Period

***Day Count Convention refers to the number of days in the interest period as a fraction of the number of days in a year based on the applicable convention for the investment currency

Scenario 1: 3 month KLIBOR stays outside the Range of 3.00% – 5.00% every day during the Observation Period starting from 14 July 2014 to 13 October 2014. The number of days interest is accrued for this Observation Period is 0 days. The Investor will receive the Minimum Interest of MYR 0.00 for that Observation Period on the Interest Payment Date (14 October 2014):

= Investment Amount x [(Rmin) + (Rmax – Rmin) x n*/N**] x Actual number of days/ Day Count Convention***
= MYR 100,000 x [(0.00%) + (6.00% - 0.00%) x 0/91] x 91/365
= MYR 0.00

Please take note that the initial Investment Amount will only be paid on the Maturity Date (14 January 2015) which will be the final Interest Payment Date

Scenario 2: 3 month KLIBOR stays within the Range of 3.00% – 5.00% every day during the Observation Period starting from 14 July 2014 to 13 October 2014. The number of days interest is accrued for this Observation Period is 91 days. The Investor will receive the Maximum Interest of MYR 1495.89 for that Observation Period on the Interest Payment Date (14 October 2014):

= Investment Amount x [(Rmin) + (Rmax – Rmin) x n*/N**] x Actual number of days/ Day Count Convention***
= MYR 100,000 x [(0.00%) + (6.00% - 0.00%) x 91/91] x 91/365
= MYR 1495.89

Please take note that the initial Investment Amount will only be paid on the Maturity Date (14 January 2015) which will be the final Interest Payment Date

Scenario 3: 3 month KLIBOR stays within the Range of 3.00% – 5.00% for 50 days during the Observation Period starting from 14 July 2014 to 13 October 2014. The number of days interest is accrued for this Observation Period is 50 days. The Investor will receive the Participating Interest of MYR 821.92 for this Observation Period on the Interest Payment Date (14 October 2014):

= Investment Amount x [(Rmin) + (Rmax – Rmin) x n*/N**] x Actual number of days/ Day Count Convention***
= MYR 100,000 x [(0.00%) + (6.00% - 0.00%) x 50/91] x 91/365
= MYR 821.92

Please take note that the initial Investment Amount will only be paid on the Maturity Date (14 January 2015) which will be the final Interest Payment Date

Scenario 4: On 28 September 2014, which is before the Maturity Date, the Investor decides to terminate their investment. The actual amount to be returned to the Investor will be adjusted for any unwinding cost payable arising from early termination. The investor may receive an amount less than their initial Investment Amount depending on the unwinding cost: 

Investor receives MYR 96,700 which is less than the initial Investment Amount of MYR 100,000 due to the deduction of unwinding cost on premature withdrawal.

PLEASE TAKE NOTE: The above simulations are being provided for illustrative purposes only and are not a forecast or indication of any expectation or performance. It does not represent actual termination or unwind prices that may be available to you. It does not present all possible outcomes or describe all factors that may affect the value of the transaction.

A gold and foreign currency linked structured product

This structured product has an embedded derivative (the Reference Derivative) that is linked to the performance of gold measured against a selected foreign currency offered by the Bank. Gold is internationally quoted as "XAU", which is the price of 1 Troy Ounce of gold in the particular foreign currency (e.g. "XAU/USD" means the price of 1 Troy Ounce of gold in US Dollars). The RHB Multi Currency Account (‘MCA’) includes gold as a currency in the MCA Gold Investment Account (MCA Gold IA) and any amount paid in gold under the terms of the particular DCI Gold will be credited into the MCA Gold IA. Investors should take note that there will be no entitlement for physical delivery of gold notwithstanding a credit balance in the MCA Gold IA.

Prior to making an investment, the Investor will need to decide on the currency pair which shall be the Base (Investment) Currency and the Alternate Currency, the Tenor of the investment, and the Conversion Rate. The Base Currency refers to the currency in which the initial investment is made and Alternate Currency is the second currency to be paired with the Base Currency for the DCI Gold. For example, if the Investor chooses gold as their Base Currency, the Alternate Currency will be foreign currency and vice versa. On the Start Date, the initial Investment Amount will be debited from the Investor´s MCA or MCA Gold IA.

On the Maturity Date, the initial Investment Amount will be paid in either gold or foreign currency, depending on which is the weaker currency based on the prevailing Spot Rate at 1400 hours Kuala Lumpur local time on the Expiry Date. Regardless of whether the initial investment is paid in either gold or foreign currency to the Investor, the interest payable on the DCI Gold will always be paid in the foreign currency. If the Spot Rate is equal to the Conversion Rate on the Expiry Date, the Bank has the sole discretion to determine the currency in which the initial Investment Amount will be repaid.

DCI Gold is not a principal protected investment.

for Redemption at Maturity

When the Base Currency is in foreign currency
The following scenarios are meant for illustration purposes and do not reflect the current or future market trends.

Scenario 1: On the Expiry Date (1 April 2014), the XAU has strengthened against the USD and the XAU/USD Spot Rate is above the Conversion Rate (XAU/USD Spot Rate > 1230). USD is not converted to XAU. On the Maturity Date (3 April 2014), the Investor will receive:

Initial Investment Amount in foreign currency + (Initial Investment Amount in foreign currency x Interest Rate x Investment Tenor/Day Count Convention)

= USD 63,272.43 + (USD 63,272.43 x 11.00% x 7/360)
= USD 63,272.43 + USD 135.33
= USD 63,407.76

Scenario 2: On the Expiry Date (1 April 2014), the XAU has weakened against the USD and the XAU/USD Spot Rate is below the Conversion Rate (XAU/USD Spot Rate < 1230). USD is converted to XAU. On the Maturity Date (3 April 2014), the Investor will receive:

Investment Amount converted to gold + (Initial Investment Amount in foreign currency x Interest Rate x Investment Tenor/Day Count Convention)

Investment Amount converted to gold
= (USD 63,272.43/1230) = XAU 51.441
= (XAU 51.441/32.1507)* x 1000
= GLD 1600

Interest in foreign currency
= USD 63,272.43 x 11.00% x 7/360
= USD 135.33

Total Redemption Amount
= GLD 1600 + USD 135.33

*1000 grams = 32.1507 XAU

WARNING
There is a risk that the Investor would not be able to recoup the initial Investment Amount of USD 63,272.43 if the Investor chooses to immediately convert the GLD received on Maturity Date (3 April 2014). Based on Scenario 2, if the GLD 1600 received on the Maturity Date is immediately converted back to USD at the Spot Rate of 1100 (3 April 2014), the USD amount would be USD 56,585.10** + USD 135.33 = USD 56,720.43, which is less than the initial amount invested of USD 63,272.43.

** (GLD 1600/1000) x 32.1507 = 51.441 x 1100 = USD 56,585.10

Scenario 3: The Spot Rate = Conversion Rate at 2pm KL time on the Expiry Date regardless whether the Base Currency is in gold or foreign currency.

If the XAU/USD on the Expiry Date (1 April 2014) is equal to the Conversion Rate, it is up to the Bank´s discretion whether to pay the Investment Amount in gold or foreign currency. Irrespective of whether the Investment Amount is paid in gold or foreign currency, the Interest Payable on the DCI Gold will always be paid in foreign currency.

Scenario 4: When the Investor decides to cancel the Investment before the Maturity Date

On 28 March 2014, which is before the Maturity Date, the Investor decides to cancel the investment. The actual amount to be returned to the Investor will be adjusted for any unwinding cost payable arising from the cancellation. The Investor may receive an amount less than their initial investment.

Investor receives USD 62,922.43 which is less than the USD 63,272.43 due to deduction of unwinding costs on premature withdrawal.

PLEASE TAKE NOTE: The actual amount to be returned to the Investor due to deduction on unwinding costs will always be paid in the Base Currency.

(B) When the Base Currency is in gold 

Scenario 1: On the Expiry Date (1 April 2014), the XAU has strengthened against the USD and the XAU/USD Spot Rate is above the Conversion Rate (XAU/USD Spot Rate > 1230). XAU is converted to USD. On the Maturity Date (3 April 2014), the Investor will receive:

Investment Amount converted to foreign currency + (Value of gold in foreign currency x Interest Rate x Investment Tenor/Day Count Convention)

Investment Amount converted to foreign currency
= 51.441 x 1230
= USD 63,272.43

Value of gold in foreign currency x Interest Rate x Investment Tenor/Day Count Convention
= (51.441 x 1250) x 11% x 7/360
= USD 137.53

Total Redemption Amount = USD 63,272.43 + USD 137.53 = USD 63,409.96

Please note that the Interest Payable on the DCI Gold will always be paid in foreign currency

WARNING
There is a risk that the Investor would not be able to recoup the initial Investment Amount of GLD 1600 if the Investor chooses to immediately convert the USD received on Maturity Date (3 April 2014). Based on Scenario 1 (Section B), if the USD 63,409.96 received on the Maturity Date is immediately converted back to GLD at the Spot Rate of 1345 (3 April 2014), the amount converted would be GLD 1466**, which is less than the initial amount invested of GLD 1600.

** (USD 63,409.96/1345) x (1000/32.1507) = GLD 1466

Scenario 2: On the Expiry Date (1 April 2014), the XAU has weakened against the USD and the XAU/USD Spot Rate is below the Conversion Rate (XAU/USD < 1230). XAU is not converted to USD. On the Maturity Date (3 April 2014), the Investor will receive:

Investment Amount in gold + (Value of gold in foreign currency x interest rate x Investment Tenor/Day Count Convention)

Investment Amount in gold
= GLD 1600

Value of gold in foreign currency x Interest Rate x Investment Tenor/Day Count Convention
= (51.441 x 1250) x 11% x 7/360 = USD 137.53

Total Redemption Amount
GLD 1600 + USD 137.53

**Please note that the Interest Payable on the DCI Gold will always be paid in foreign currency

PLEASE TAKE NOTE: The above simulations are being provided for illustrative purposes only and are not a forecast or indication of any expectation or performance. It does not represent actual termination or unwind cost that may be available to you. It does not present all possible outcomes or describe all factors that may affect the value of the transaction.

Foreign exchange linked structured product

With an embedded derivative (the Reference Derivative) linked to the performance of a pair of currencies, Dual Currency Investment (DCI) allows the investor to enjoy potentially higher returns compared with traditional deposits.

Prior to making an investment you will need to decide on the currency pair which shall be the Base (investment) Currency and the Alternate Currency, the tenor of the investment and the Conversion Rate. On maturity, you will receive the initial investment amount either in the Base Currency or the Alternate Currency depending on where the prevailing exchange rate of the currency pair settles against the Conversion Rate on the Expiry Date.

The Base Currency refers to the currency in which the initial Investment is made and Alternate Currency is the second currency of the chosen currency pair to be paired with the Base Currency for the DCI.

The initial investment will always be repaid in the weaker currency as determined on the Expiry Date. Regardless of the currency in which the initial investment amount is returned to you, the interest payable on the DCI will always be paid in the Base Currency. If the prevailing exchange rate is equal to the Conversion Rate on the Expiry Date, the Bank has the sole discretion to determine the currency in which the initial investment amount will be repaid.

DCI is not a principal protected investment.

for Redemption at Maturity 

The following scenarios are meant for illustration purposes and do not reflect the current or future market trends or performance of the DCI.

Scenario 1: The Base Currency weakens against the Alternate Currency. The Investment Amount will not be converted on the Expiry Date. On the Maturity Date you will receive:-

Investment Amount in the Base Currency + Interest in the Base Currency
= AUD 100,000 + AUD 175 = AUD 100,175

Calculations:

Interest = Investment Amount x Interest Rate x Investment Tenor/Day Count Convention = AUD 100,000 x 9.00% x 7/360 = AUD 175

Scenario 2: The Base Currency strengthens against the Alternate Currency. The Investment Amount will be converted on the Expiry Date.

On the Maturity Date you will receive:-

Investment Amount in the Alternate Currency + Interest in the Base Currency = USD 91,200 + AUD 175

Calculations

Investment Amount will be converted to the Alternate Currency at the Conversion Rate = AUD 100,000 x 0.9120 = USD 91,200

Interest in the Base Currency = Investment Amount in Base Currency x Interest Rate x Investment Tenor/ Day Count Convention = AUD 100,000 x 9.00% x 7/360 = AUD 175

Warning: DCI is not principal protected. If your investment is repaid in the Alternate Currency on maturity, and you choose to immediately convert it back to the Base Currency, you may receive less than the original Investment Amount.

Scenario 3: The Spot Rate is equal to the Conversion Rate on the Expiry Date.

For scenario 3, the Bank has the sole discretion to determine whether the Investment Amount will be repaid in the Base Currency (AUD100,000) or the Alternate Currency(USD 91,200). The Interest earned will be paid in the Base Currency (AUD 175)

Scenario 4: Unwinding Cost for Premature Termination/Cancellation

If the investment is terminated /cancelled before the maturity date, the actual amount to be returned to the Investor might be less than the initial Investment Amount.

Unwinding Cost for Premature Termination/Cancellation : 

Investor receives AUD 99,430 which is less than the initial Investment Amount of AUD 100,000 due to unwinding cost on premature withdrawal.

PLEASE TAKE NOTE: The above simulations are being provided for illustrative purposes only and are not a forecast or indication of any expectation or performance. It does not represent actual termination or unwind cost that may be available to you. It does not present all possible outcomes or describe all factors that may affect the value of the transaction.

for Frequently Ask Questions

A principal protected investment with an embedded derivative

At the inception of the investment, the Investor agrees to the underlying currency pair and its Range. The Range which is fixed upfront is a set of exchange rates of the currency pair which forms the upper and lower limit for the FX-Range Accrual. The performance of the underlying currency pair will be determined on a daily basis during the Observation Period. The Interest payable on the investment will be paid on each Interest Payment Date determined by the actual number of days the Spot Rate of the underlying currency pair is within the Range (i.e. Lower Limit ≤ Spot Rate ≤ Upper Limit) for each Observation Period.

If the Spot Rate stays within the Range every day of the Observation Period, the Investor will receive the Maximum Interest Rate. If the Spot Rate stays outside the Range every day during the Observation Period, the Investor will receive the Minimum Interest Rate. If the Spot Rate moves within and outside of the Range during the Observation Period, the Investor will receive a Participating Interest Rate which is more than the Minimum Interest Rate but lower than the Maximum Interest Rate based on the total number of days the Spot Rate stays within the Range during the Observation Period.

Depending on the terms of the particular FX-Range Accrual, it may include a Callable feature which gives RHB Bank the right to terminate the FX-Range Accrual on any Interest Payment Date prior to the Maturity Date and return the initial Investment Amount together with any interest due up to the Call Date to the Investor. The initial Investment Amount is protected only if the investment is held until maturity or in the event of a Call prior to maturity.

for Redemption at Maturity

Investor will either receive the Minimum, Maximum or the Participating Interest Rate from this Investment. The following are illustrations of the possible outcome from this Investment: 

The Interest Amount is payable in the Investment Currency and is calculated based on the below formula:

Investment Amount x [(Rmin) + (Rmax – Rmin) x n*/N**] x Actual number of days / Day Count Convention***

*n = Number of days in which the Spot Rate stays within the Range for each Observation Period

**N = Number of days in the Observation Period

***Day Count Convention refers to the number of days in the interest period as a fraction of the number of days in a year based on the applicable convention for the investment currency

Scenario 1: USD/MYR stays outside the Range of 3.4900 – 3.6200 every day during the Observation Period starting from 5 Feb 2015 to 3 Aug 2015. The number of days interest is accrued for this Observation Period is 0 days. The Investor will receive the Minimum Interest of MYR 495.89 for that Observation Period on the Interest Payment Date (5 Aug 2015):

Investment Amount x [(Rmin) + (Rmax – Rmin) x n*/N**] x Actual number of days / Day Count Convention***
= MYR 100,000 x [(1.00%) + (5.75% - 1.00%) x 0/180] x 181/365
= MYR 495.89

Please take note that the initial Investment Amount will only be paid on the Maturity Date (5 Feb 2016) which will be the final Interest Payment Date

Scenario 2: USD/MYR stays within the Range of 3.4900 – 3.6200 every day during the Observation Period starting from 5 Feb 2015 to 3 Aug 2015. The number of days interest is accrued for this Observation Period is 180 days. The Investor will receive the Maximum Interest of MYR 2851.37 for that Observation Period on the Interest Payment Date (5 Aug 2015):

Investment Amount x [(Rmin) + (Rmax – Rmin) x n*/N**] x Actual number of days / Day Count Convention***
= MYR 100,000 x [(1.00%) + (5.75% - 1.00%) x 180/180] x 181/365
= MYR 2851.37

Please take note that the initial Investment Amount will only be paid on the Maturity Date (5 Feb 2016) which will be the final Interest Payment Date

Scenario 3: USD/MYR stays within the Range of 3.4900 – 3.6200 for 110 days during the Observation Period starting from 5 Feb 2015 to 3 Aug 2015. The number of days interest is accrued for this Observation Period is 110 days. The Investor will receive the Participating Interest of MYR 1935.35 for that Observation Period on the Interest Payment Date (5 Aug 2015):

= Investment Amount x [(Rmin) + (Rmax – Rmin) x n*/N**] x Actual number of days / Day Count Convention***
= MYR 100,000 x [(1.00%) + (5.75% - 1.00%) x 110/180] x 181/365
= MYR 1935.35

Please take note that the initial Investment Amount will only be paid on the Maturity Date (5 Feb 2016) which will be the final Interest Payment Date

Scenario 4: On 28 July 2015, which is before the Maturity Date, the Investor decides to terminate their investment. The actual amount to be returned to the Investor will be adjusted for any unwinding cost payable arising from early termination. The investor may receive an amount less than their initial Investment Amount depending on the unwinding cost:

Investor receives MYR 97,700 which is less than the initial Investment Amount of MYR 100,000 due to the deduction of unwinding cost on premature withdrawal.

PLEASE TAKE NOTE: The above simulations are being provided for illustrative purposes only and are not a forecast or indication of any expectation or performance. It does not represent actual termination or unwind prices that may be available to you. It does not present all possible outcomes or describe all factors that may affect the value of the transaction