Dual Currency Deposit ('DCD') - key risks and features

MiFID II

This deposit product allows a client to earn interest over a flexible term with the added feature that if the prevailing Spot market is at a pre-defined rate on maturity the deposit will convert. In this scenario the client will, on expiry, be returned their deposit plus interest in an alternate currency.

Key risks and features

  • Market Risk

    • Market risk can materialise due to macroeconomic factors and may have an impact on a particular instrument or more broadly on currency markets as a whole.
    • The client deposit is subject to a potential conversion dependent upon pre-defined market conditions on expiry.
    • A client may receive back less, in original currency terms, than originally deposited dependant upon market conditions on expiry.

  • Credit Risk

    • By entering into a bilateral contract a client is taking on a credit risk to Investec Bank plc. In the event that Investec should default on its obligations or become insolvent a client may not receive back the full value of their transactions.

  • Volatility Risk

    • In adverse market conditions volatility can increase and this will lead to greater 
    • market risk. In normal market conditions volatility in FX markets will vary between currency pairs. Major currency pairs such as G10 currencies offer more stability than emerging market currencies where volatility is more significant.
    • Changes in volatility will have an impact on the mark to market of a derivative contract.

  • Liquidity Risk

    • FX markets are generally very liquid, however similarly to volatility this can depend on currency pair. G10 currency pairs will offer greater liquidity than more obscure emerging market currency pairs.
    • In markets with less liquidity clients may be subject to a wider spread with regards to pricing available.

  • FX Risk

    • Clients entering into a DCD with Investec are exposed to direct FX risk as fluctuations in the market will have a direct impact on the outcome for the client.

  • Concentration Risk

    • Concentration risk is not applicable to these products.

  • Conflicts Risk

    • Investec may take and /or hold positions that conflict with those of our clients. More details around the treatment and execution of client orders can be found in the Order Execution policy which can be found on the website.
      • Conflicts arising from Investec’s business model, such as the one noted above, are managed through internal controls and process and is detailed in the Conflicts of Interest policy which can be found on the website.

    • Transparency

      • FX Spot markets are very transparent with up-to-date pricing available online. Pricing around other FX instruments such as an OTC FX derivative is less transparent. 

    • Margin

      • Margin is not applicable to this product.

    • Contingent Liabilities

      • Contingent Liabilities are not applicable to this product.

    • Exit Costs

      • A DCD does not have explicit exit fees that are payable above and beyond a client's mark to market and contractual obligations should they wish to close a position early, however there may be costs involved in this process depending upon market conditions at the time the client wishes to exit. A client may not be able to redeem full original value of the contract.
      • A clients ability to exit early will also be dependent upon the liquidity of the market at the time, should a market be illiquid at the point of early exit then the exit costs are likely to be more significant.
      • There is no cost associated with exiting a product on expiry or at the end of its recommended holding period provided a client satisfies their contractual obligations.

    • Leverage

      • Net sold optionality creates a gearing effect on both risks and returns.

    • Interest Rate Risk

      • Clients entering into this contract are exposed to interest rate risk primarily in relation to the term of the product. 

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