Flip Investment with Flip Mark at Maturity

 

Initial situation:

  • ABC GmbH has liquidity of EUR 10 million for short-term investment
  • At the same time, it imports products from the USA (regular need for USD)
  • Classic EUR investment with negative interest rate

 

Solution: Flip investment with flip mark upon maturity

Possible repayment of the EUR investment amount in USD, but a guaranteed interest rate of the EUR investment amount significantly higher than the money market level

Indicative calculation example

(no recommended action/investment advice)

Variant 1: Classic EUR investment

Variant 2: Flip investment with flip mark upon maturity

Investment amount: EUR 10 million

Investment amount: EUR 10 million

Investment period: 3 months

Investment period: 3 months

Investment interest: -0.55% p.a.

Investment interest: 2.50% p.a. (interest advantage of 3.05% p.a.)

Flip mark: EUR/USD 1.2300

 

Risks

  • If the EUR/USD spot rate is on or above the flip mark at maturity, you will receive your EUR investment amount in USD back at the EUR/USD rate of 1.23
  • Depending on the EUR/USD spot rate at maturity, you could achieve a higher USD equivalent value for your EUR investment amount at this time

Opportunities

  • You receive a guaranteed interest rate above the money market level of 2.50% p.a.
  • The flip mark is only valid at maturity

In this example, ABC GmbH could secure an interest rate of 2.50% for the EUR investment in Variant 2. If the EUR/USD spot price is on or above the flip mark of EUR/USD 1.2300 at maturity, the investment amount will be repaid in USD at a rate of EUR/USD 1.2300. If the EUR/USD exchange rate at maturity is below EUR/USD 1.2300, it will receive the investment amount back in EUR. The flip investment guarantees an interest rate of 2.50% p.a., which is always paid out in EUR.

 

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