On Interest Rate Exposure
On Foreign Exchange Exposure
For your investments, you may also wish to consider the following alternative instruments:
Enhanced Yield Deposit Products can offer your company an alternative risk/reward profile which you may wish to consider for your investments. The return is usually linked to a market measure such as a foreign exchange rate or an equity index level, and so the actual return achieved can sometimes be volatile. The investor can however reduce the risk exposure by choosing Products that guarantee the principal fully or partially. This ensures that in the worst case scenario, the investor is at least assured of receiving his (full or partial) principal back. Some of these Enhanced Yield Deposit Products not only assure the investor of receiving his principal back in full, but are also able to guarantee a certain fixed rate of return in the worst case scenario. Investors who choose to invest in this “safer” product may also wish to note that the lesser amount of risk taken usually translates to a lesser achievable return is most cases.
Local Bonds usually allow the investor to achieve a higher rate of return versus a regular fixed deposit. These bonds are either issued by the government (sovereign bonds) or by companies (corporate bonds). The investor is able to achieve a higher rate of return as he is being compensated for the additional credit risk relative to placing a regular deposit with a bank. As most of these bonds are issued in the local currency, the investor is not subjected to foreign exchange risk. There are also bonds that are issued in a foreign currency, for example USD-denominated bonds issued in Singapore. Investors investing in such local bonds will be subjected to foreign exchange risk.
Foreign Bonds are basically similar to local bonds, except that they are issued by a foreign entity, i.e., either a foreign government (sovereign bonds) or a foreign company (corporate bonds). The investor is able to achieve a higher rate of return as he is being compensated for the additional credit risk relative to placing a regular deposit with a bank. As most of these bonds are issued in a foreign currency, the investor is subjected to foreign exchange risk. Hence investors wishing to invest in Foreign Bonds may also wish to ensure that they are comfortable with the associated foreign exchange risk.
Equities are generally volatile instruments that can offer an alternative risk/reward profile. Investment horizons for such instruments are generally recommended to be of a longer time frame. Investors should study the company profiles well and have a good understanding of the future performance of the company before embarking on such investments. Other factors like market sentiment, macro-economic issues, industry specific issues etc. should also be taken into consideration in your investment decisions.
On Financial Risk Management Policy
We would also like to discuss with the current financial risk management techniques and tools currently available to assist you in your company’s financial risk management activities.
This financial risk management questionnaire has been prepared by PI ETA Consulting Company, a Singapore-based Financial Risk Management consulting concern. PI ETA does not purport to discuss all of the risks and other significant aspects of your organization’s Financial Risk Exposures. You should therefore consult with your own legal, tax and Financial Advisors prior to undertaking any form of Financial Risk Management activities. It is important for you to determine whether any transaction is suitable for your operations, business and organization, and you should be aware that this is your sole responsibility.
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