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How does Capital Protected Investment – Currency Linked III (CPI III) work?

See how a Capital Protected Investment – Currency Linked III (CPI III) may work for you and what payouts you may receive

Introduction

Here's an illustrative example of what could happen if you invest in a CPI III.

Customer view: Bullish, after 6 months, GBP/USD should appreciate to 1.3390 or above

Product details Important dates Payout upon maturity
Deposit Currency: GBP
Linked Currency: USD
Tenor: 6 months
Deposit amount: £100,000
Spot exchange rate: 1.3190
Trigger rate: 1.3390 (Spot exchange rate + 0.02)
Trade date: 17 Mar 202X
Deposit date: 24 Mar 202X
Maturity date: 24 Sep 202X
Fixing time: 2pm HK time, 22 Sep 202X
Best return:
100.37% of principal if GBP/USDfix at fixing is at or above 1.3390
Minimum Return:
100.28% of principal if GBP/USDfix at fixing is below 1.3390

Here's an illustrative example of what could happen if you invest in a CPI III.

Customer view: Bullish, after 6 months, GBP/USD should appreciate to 1.3390 or above

Product details Deposit Currency: GBP
Linked Currency: USD
Tenor: 6 months
Deposit amount: £100,000
Spot exchange rate: 1.3190
Trigger rate: 1.3390 (Spot exchange rate + 0.02)
Important dates Trade date: 17 Mar 202X
Deposit date: 24 Mar 202X
Maturity date: 24 Sep 202X
Fixing time: 2pm HK time, 22 Sep 202X
Payout upon maturity Best return:
100.37% of principal if GBP/USDfix at fixing is at or above 1.3390
Minimum Return:
100.28% of principal if GBP/USDfix at fixing is below 1.3390

GBP/USDfix is the spot rate for conversion of USD into GBP on relevant FX reference page

Return diagram

The diagram displays what a CPI placement could include. It is an illustration of the table previously shown, which shows how a customer receives upon maturity - when it reaches at or above the trigger rate 0.7930 , or when it reaches below the trigger rate 0.7930

Payout upon maturity

This diagram shows the minimum return you may receive if GBP/USDfixes below the trigger rate, and the best return you may receive if it fixes at or above the trigger rate.

  • 100.37% of principal if GBP/USDfix is fixed at or above 1.3390
  • 100.28% of principal if GBP/USDfix is fixed at below 1.3390

Payout scenario:

This table shows the payout at maturity that you may receive, depending on a minimum return or best return scenario.
Return Payout at maturity
Minimum Return
(100% principal + min. return 0.28%)
GBP/USDfix at fixing < the trigger rate
(ie <1.3390), you will receive full principal
and minimum return at maturity.
Total return at maturity
= £100,000 + £100,000 × 0.28%
= £100,000 + £280
= £100,280
(with a gain of 0.28% of principal amount)
Best Return
(100% principal + best return 0.37%)
GBP/USDfix at fixing ≥ the trigger rate
(ie ≥1.3390), you will receive full principal
and best return at maturity.
Total return at maturity
= £100,000 + £100,000 × 0.37%
= £100,000 + £370
= £100,370
(with a gain of 0.37% of principal amount)
This table shows the payout at maturity that you may receive, depending on a minimum return or best return scenario.
Return Minimum Return
(100% principal + min. return 0.28%)
Payout at maturity
GBP/USDfix at fixing < the trigger rate
(ie <1.3390), you will receive full principal
and minimum return at maturity.
Total return at maturity
= £100,000 + £100,000 × 0.28%
= £100,000 + £280
= £100,280
(with a gain of 0.28% of principal amount)
Return Best Return
(100% principal + best return 0.37%)
Payout at maturity
GBP/USDfix at fixing ≥ the trigger rate
(ie ≥1.3390), you will receive full principal
and best return at maturity.
Total return at maturity
= £100,000 + £100,000 × 0.37%
= £100,000 + £370
= £100,370
(with a gain of 0.37% of principal amount)

Additional scenario

Converting GBP into your home currency at maturity

Let's assume that GBP/USDfix at fixing is 1.29 and at maturity, you choose to convert your maturity amount in GBP back to HKD as your home currency. Assume the initial spot for GBP/HKD on trade date was 10.31 and GBP/HKD depreciated to 10.10 on maturity date.

In this scenario, the potential loss from the product could offset (or even exceed) the potential gain if deposit currency (ie GBP) depreciates against your home currency (ie HKD): 

Principal amount in HKD at maturity – principal amount in HKD on trade date 
= (100.28% × £100,000) × 10.10 − (£100,000 × 10.31) 
= −HKD18,172, equivalent to a loss of 1.76% of the principal amount in HKD

Worst-case scenario

The Bank becomes insolvent or defaults on its obligations

Assuming that the Bank becomes insolvent during the tenor of this product or defaults on its obligations under this product, you can only claim as its unsecured creditor. You may get nothing back and suffer a total loss of your deposit amount.

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The above scenarios are provided for illustrative purposes only, and do not reflect a complete analysis of all possible gain and loss scenarios that may arise during any actual investment. No representation or warranty is made by the Bank that any scenario described above can be duplicated under real investment conditions. Actual results may vary from the results shown above, and variations may be material.

  • The information shown on this website is neither a recommendation, an offer, nor a solicitation for any investment product or service. Investment involves risk. You should carefully consider whether any investment product or service mentioned herein is appropriate for you in view of your personal circumstances. Past performance is no guide to future performance. Investors should refer to the individual product explanatory memorandum or offering document for further details, product features, fees and charges and risks involved. The price of investment products may move up or down. Losses may be incurred as well as profits made as a result of buying and selling investment products.
  • Structured Investment Deposit is not regulated by the Securities and Futures Commission (the 'SFC').  The offering documents of Structured Investment Deposit have not been reviewed by the SFC or any regulatory authority in Hong Kong.  You should exercise caution when buying any Structured Investment Deposit.

Risk disclosure – Capital Protected Investment – Currency-linked III (CPI III)

  • Not a time deposit – CPI III is NOT equivalent to, nor should it be treated as a substitute for, time deposit. It is NOT a protected deposit and is NOT protected by the Deposit Protection Scheme in Hong Kong.
  • Derivatives risk – CPI III is embedded with FX option(s). Option transactions involve risks. If the exchange rate of the currency pair performs against expectation at the fixing time on the fixing date, you can only earn the minimum payout of the structure.
  • Limited potential gain – The maximum potential gain is limited to higher payout on the deposit less the principal amount, when exchange rate of currency pair at fixing moves in line with your anticipated direction.
  • Not the same as buying the linked currency – Investing in CPI III is not the same as buying the linked currency directly.
  • Market risk – The return of CPI III will depend upon the exchange rates of currency pair against trigger rate at the fixing time on the fixing date. Movements in exchange rates can be unpredictable, sudden and drastic, and affected by complex political and economic factors. You must be prepared to take the risk of earning the lower payout/no return (if the exchange rate performs against expectations) on the money invested.
  • Liquidity risk – CPI III is designed to be held until maturity. You do not have a right to request early termination of this product before its maturity. Under special circumstances, HSBC has the right to accept your early redemption request at its sole discretion and on a case-by-case basis. The Bank will provide an indication of the redemption price upon such request. Your return upon such early redemption will likely be lower than if the deposit were held until maturity and may be negative.
  • Credit risk of HSBC – CPI III is not secured by any collateral. When you invest in this product, you will be relying on the HSBC's creditworthiness. If HSBC becomes insolvent or defaults on its obligations under this product, you can only claim as an unsecured creditor of HSBC. In the worst case, you could suffer a total loss of your deposit amount.
  • Currency risk – If the deposit currency is not your home currency, and you choose to convert it back to your home currency upon maturity, you may make a gain or loss due to exchange rate fluctuations.
  • Risk of early termination by HSBC – HSBC shall have the discretion to uplift a deposit or any part thereof prior to the maturity date (subject to the deduction of such break costs or the addition of such proportion of the return or redemption amount, which may result in a figure less than the original principal amount of the deposit) if it determines, in its sole discretion, that this is necessary or appropriate to protect any right of HSBC to combine accounts or set-off, or any security interest, or to protect the customer's interests.
  • Risks relating to RMB – You should note that the value of RMB against other foreign currencies fluctuates and will be affected by, amongst other things, the PRC government's control (e.g. the PRC government regulates conversion between RMB and foreign currencies), which may adversely affect your return under this product when you convert RMB into your home currency. The value of your RMB deposit will be subject to the risk of exchange rate fluctuation. If you choose to convert your RMB deposit to other currencies at an exchange rate that is less favourable than that in which you made your original conversion to RMB, you may suffer loss in principal. This product (if denominated in RMB) will be denominated and settled in RMB deliverable in Hong Kong, which is different from that of RMB deliverable in mainland China.