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 |
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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.
Your contacts
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Sabrina Aschenbach
Corporate Sales | Deputy line | Interest rate, FX and liquidity management
Phone: +49 (0) 511 361-8435