Chapter 1 M9A Introduction To Structured Products

Structured deposits are financial products that offer a combination of a traditional deposit account and an investment product. They typically provide a fixed return over a specific period of time and are issued by banks. Lloyds' syndicates are not known for issuing structured deposits, as they are primarily involved in insurance underwriting. Insurance companies may offer other types of investment products, but structured deposits are not typically one of them. Stock broking houses primarily deal with stocks and other securities, not structured deposits. Therefore, the correct answer is banks.

Senior bonds are given priority over shares and subordinated bonds during liquidation. This means that in the event of a company's liquidation or bankruptcy, senior bondholders have a higher claim on the company's assets and are more likely to be repaid before other types of bondholders or shareholders. This priority is based on the contractual agreement between the company and the bondholders, which states that senior bondholders have a higher ranking in the repayment hierarchy.

Investments that offer high return at high risk are called "bold investments" because they require a bold or daring approach due to the potential for significant gains but also the possibility of significant losses. These types of investments typically involve high volatility and uncertainty, making them suitable for individuals who are willing to take on higher levels of risk in exchange for the potential for higher returns.

Structured Products are financial instruments that are typically created by combining various financial assets to create a single product. They are known for their complex nature and often have features that make them different from traditional debt or equity securities. While it is true that they are hybrid products and can have both debt and equity-like characteristics, it is not true that they participate in the profits of the issuer. Structured Products are typically designed to provide investors with specific risk and return profiles, and their returns are determined by the performance of the underlying assets rather than the profits of the issuer.

Investments that carry a low probability of returns while carrying a low probability of loss can be considered safe instruments. This means that these investments have a lower risk compared to other options and are less likely to result in losses. They may not provide high returns, but they offer a higher level of security and stability.

A reverse convertible bond is an unsecured debt instrument. This means that the bond does not have any collateral backing it and relies solely on the creditworthiness of the issuer. Unlike a secured debt instrument, which is backed by specific assets that can be seized in the event of default, an unsecured debt instrument does not have any specific assets pledged as collateral.

One similarity amongst the various structured products is that they use financial derivatives. This means that structured products, regardless of their specific features or benefits, all utilize financial derivatives as part of their investment strategy. Financial derivatives are instruments that derive their value from an underlying asset, such as stocks, bonds, or commodities. By using financial derivatives, structured products can offer unique risk and return profiles to investors. Therefore, the correct answer is that structured products use financial derivatives.

Structured products are unsecured debt securities of the issuer. This means that they are financial instruments that represent a debt obligation of the issuer and do not have any collateral or security backing them. They are typically created by packaging together different financial instruments to create a new product with specific risk and return characteristics. This makes them different from financial derivatives, fixed income instruments, and equity-like products, which have their own distinct characteristics and features.

Reserve convertible bonds are constructed by combining a bond with a put option. This means that the holder of the bond has the right to sell the bond back to the issuer at a predetermined price, usually at or near the face value of the bond. This combination provides the bondholder with the option to convert the bond into shares of the issuer's stock at a later date if desired.

Investments that carry a low probability of returns while carrying a low probability of loss can be considered safe instruments. This means that these investments have a low risk of losing money and also have a low potential for high returns. Safe instruments are often preferred by conservative investors who prioritize the preservation of capital over the possibility of earning high profits.

The maturity value of the zero-coupon bond must be S$300 in order for the structured product to meet the return of principal to the investor. This is because the structured product manager purchased the bond at S$100 for every S$300 invested in the structured product. Therefore, if the maturity value of the bond is S$300, it would be equal to the amount invested in the structured product, ensuring that the principal is returned to the investor.

The correct answer is Singapore Exchange. The question is asking about the oversight of listed products in Singapore, and the Singapore Exchange is responsible for overseeing the trading and listing of securities and other financial products in Singapore. The other options, such as the Associated Banks of Singapore, Investment Managers of Singapore, and Brokers Association of Singapore, are not directly involved in the oversight of listed products.

The term "wrapper" refers to a financial product that combines multiple underlying assets into a single investment. Structured term equity is not typically considered a wrapper because it focuses specifically on equity investments, rather than combining multiple assets. On the other hand, structured deposit, structured note, and structured fund are all examples of wrappers as they involve combining different types of assets or investment strategies.

The correct answer is "The use of financial derivatives." This means that all the various structured products have in common the fact that they involve the use of financial derivatives. Financial derivatives are instruments whose value is derived from an underlying asset, such as stocks, bonds, or commodities. They are used in structured products to create customized investment strategies and provide investors with exposure to specific market conditions or investment opportunities.

Structured products are financial instruments that are created by combining traditional investments, such as stocks or bonds, with financial derivatives. These derivatives can include options, swaps, or other complex securities. The purpose of structuring these products is to provide investors with a customized investment that meets their specific needs or objectives. By combining traditional investments with derivatives, structured products can offer unique risk and return profiles that may not be available through traditional investment options. Therefore, the correct answer is that structured products are created by combining traditional investments with financial derivatives.

Structured products are financial instruments that are designed to meet specific investment objectives. They are called hybrid products because they combine elements of traditional investments, such as stocks or bonds, with other types of investments, such as derivatives or options. This combination allows investors to customize their exposure to different asset classes and potentially enhance returns or manage risks. Therefore, the statement that structured products are also known as hybrid products is a correct explanation of their nature.

Structured deposits are different from structured ILPs because they are issued only by banks. This means that only banks have the authority to offer structured deposits to customers, while structured ILPs may be offered by other financial institutions or investment companies. The exclusivity of structured deposits being issued by banks sets them apart from structured ILPs.

The maturity value of the zero-coupon bond must be $100 in order to return the principal to the investor. Since the structured product manager purchased the bond at $20 for every $100 invested, the maturity value needs to be equal to the principal investment of $100.

An airbag certificate allows the underlying stock to rebound during the life of the certificate, which means that if the stock price decreases, the investor still has the opportunity for the stock to recover and potentially make a profit. This is an advantage over a bonus certificate, which may not provide the same opportunity for the stock to rebound.

Structured products have the ability to offer customized exposure, meaning that investors can tailor their investments to match their specific investment goals and risk tolerance. They are also useful as a complement to traditional investments, as they can provide diversification and potentially enhance returns. Additionally, structured products are accessible to retail investors in the same ways that other investment products are, allowing individual investors to participate in these opportunities. Therefore, all of the given statements are valid reasons why investors may wish to invest in structured products.

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The given description states that the product combines term insurance coverage with investment returns. This is a characteristic of a structured investment-linked policy (ILP), which is a type of insurance product that includes both an insurance component and an investment component. Therefore, the correct answer is a structured ILP.

A bonus certificate is a type of financial instrument that offers conditional downside protection based on a pre-determined barrier. This means that if the underlying asset falls below a certain level (the barrier), the investor will receive a bonus payment to compensate for any losses. This feature provides a level of protection for the investor's investment, making the bonus certificate a suitable option for those looking for downside protection.

Structure deposits are considered as investment products because they offer the potential for high returns. They are not traditional bank deposits, but rather complex financial products that typically combine a deposit with an investment component. Investors who purchase structure deposits are taking on a higher level of risk compared to traditional bank deposits, but they also have the opportunity to earn higher returns. It is important to note that structure deposits are not covered by the Deposit Insurance Scheme in Singapore, and investors are considered secured creditors of the issuer in the event of liquidation.

Structured products typically consist of a combination of bonds and options. Bonds provide stability and fixed income, while options offer potential for higher returns and flexibility in investment strategies. This combination allows investors to customize their risk and return profiles based on their individual preferences and market conditions. Equities and derivatives may be used in certain structured products, but they are not the usual make-up.

A knock-out feature refers to the point at which the conditional downside protection of bonus certificates no longer applies. This means that if the underlying asset's price reaches or falls below a pre-determined level, the protection is "knocked out" and the investor no longer benefits from it. This feature is important because it helps investors understand the conditions under which they may lose their downside protection and potentially incur losses on their investment.

A form of funded credit derivative, structured as a security with an embedded credit default swap is known as a credit-linked structured product. This type of structured product is designed to transfer credit risk from one party to another, allowing investors to gain exposure to the creditworthiness of a specific reference entity. By purchasing this product, investors can protect themselves against the risk of default by the reference entity.

The maturity value of the zero-coupon bond must be $100 in order to return the principal to the investor. This is because the structured product manager purchased the bond at a discounted price of $80 for every $100 invested. Therefore, at maturity, the bond must be worth the full $100 in order to return the principal to the investor.

Investors may wish to invest in structured products because they provide access to investment markets that are otherwise closed to them. This means that structured products offer opportunities to invest in markets or assets that may not be easily accessible through traditional investment vehicles. This can be beneficial for investors looking to diversify their portfolios or take advantage of specific market opportunities.

The statement that structured deposits have low risks is FALSE. Structured deposits are actually considered to have higher risks compared to traditional deposits. This is because structured deposits often involve complex investment strategies and may be linked to the performance of underlying assets such as stocks or bonds. Therefore, the risk associated with structured deposits depends on the performance of these underlying assets, making them more susceptible to market fluctuations and potential losses.

A structured product that is linked to a certain basket of market indices means that the performance of the product is dependent on the performance of those market indices. This suggests that the product's returns will be influenced by the overall movements and fluctuations in the market. Therefore, the correct answer is "Market-linked."

Structured deposits are financial products that are typically arranged by banks and offer a combination of a deposit account and an investment product. These deposits are usually designed in a way that guarantees the return of the initial capital invested by the customer, regardless of the performance of the underlying investment. This ensures that the customer's capital is protected and not at risk. Therefore, the statement "Usually arranged such that the capital is guaranteed by the bank" is the correct answer.

A structured fund is described as having a trust structure. This means that the fund is set up as a trust, with a trustee holding and managing the assets on behalf of the investors. This structure provides legal protection for the investors and ensures that the fund is managed in their best interests. The other options mentioned, such as being distributed by the bank channel, having a factsheet as the main disclosure document, and having low administration costs, do not specifically define a structured fund.

The downside protection refers to the level of protection against losses in an investment. In this context, the effectiveness of the downside protection is dependent on the credit worthiness of the party providing the protection. This means that the ability of the party to fulfill their financial obligations and repay any potential losses is crucial for the downside protection to be reliable. The reputation and performance of the party may also be important factors, but the credit worthiness is the most relevant in determining the effectiveness of the downside protection.

Listed structured products have the advantage of liquidity compared to other structured products. This means that they can be easily bought or sold on an exchange, allowing investors to access their capital quickly if needed. This is in contrast to other structured products that may have limited liquidity and may require a longer time to sell or redeem.

The correct answer is "Rare gems" because it implies that these investments are valuable and hard to find, just like rare gems. This suggests that they are unique and have a high potential for returns while also having a low risk of losing the initial investment.

In the event of liquidation, owners of senior bonds have the highest priority for repayment. This means that they will be the first to receive their money back before any other creditors or shareholders. Senior bonds are considered to be more secure and less risky compared to subordinated bonds or company stocks, which is why their owners have the highest priority for repayment in case of liquidation.

Structured products typically consist of a combination of different investment assets, such as bonds and options. This combination allows investors to customize their risk and return profile based on their investment goals and preferences. Bonds provide stability and fixed income, while options offer potential for higher returns and flexibility in managing risk. By including both bonds and options in structured products, investors can benefit from a diversified portfolio that balances stability and growth potential.

When a bonus certificate is knocked-out, it means that the protection provided by the certificate is no longer applicable. Instead of receiving the principal investment amount and the contract being terminated, or having to top up cash, the investor will be paid the value of the underlying asset at maturity. This means that the investor will not receive any additional bonus or return on the investment, but will only receive the value of the underlying asset.

When buying reverse convertible bonds, we are actually buying a bond and a written put option. A reverse convertible bond is a type of bond that pays a higher interest rate but also carries the risk of the underlying asset falling in value. By buying a written put option, the investor is essentially selling the right to sell the underlying asset at a predetermined price. This can provide some downside protection for the investor, as they will receive the premium from selling the put option.

The investor would receive his capital of S$ 100 because the zero-coupon bond, which comprises 80% of the investment, would still mature at its par value. However, the investor would also incur a loss of S$ 20 on the price paid for the call option since the share price dropped to S$ 50 on maturity, rendering the option worthless. Therefore, the investor would receive his initial capital but incur a loss on the option.

Investors of structured deposits are unsecured creditors of the issuer in the event of liquidation. This means that if the issuer of the structured deposit goes bankrupt or becomes insolvent, the investors will have a claim on the assets of the issuer, but they will not have any specific collateral or security for their investment. They will be treated as general creditors and will have to wait in line with other creditors to receive their share of the remaining assets. This puts the investors at a higher risk compared to being protected against loss of their capital or having insurance coverage.

Performance participation structured products are unsecured debt instruments. This means that they do not have any collateral backing and are not secured by any specific assets. As a result, if the issuer of the product defaults on its obligations, the investor may not be able to recover their full investment. This lack of security makes these products riskier compared to other types of investments.

Structured products can use different forms of wrappers as the underlying asset. This means that structured products can be based on various underlying assets such as stocks, bonds, commodities, or derivatives. The use of different forms of wrappers allows for customization and flexibility in designing structured products to meet specific investment objectives or risk profiles.

SGX requires at least 75% of the securities to be spread out to a minimum of 100 investors in the case of ETNs and certificates. This ensures liquidity by preventing a concentration of ownership and promoting a wider distribution of the securities among investors.

Structured deposits are considered investment products because they involve the investment of funds with the expectation of earning a return. They are not protected under the Deposit Insurance Scheme in Singapore because they carry a higher level of risk compared to traditional deposits. The Deposit Insurance Scheme only covers deposits in banks and finance companies, not investment products. Therefore, structured deposits are not eligible for protection under the scheme.

Structured deposits are a type of structured product. They are not investment products, but rather a type of investment that combines a deposit with a derivative component. Structured deposits are not covered by the Deposit Insurance Scheme in Singapore, which means that investors may not receive compensation in the event of default.

A structured ILP fund is governed by the Code on Collective Investment Scheme. This code provides regulations and guidelines for the operation and management of collective investment schemes, including ILP funds. It ensures that the fund operates in a structured and regulated manner, protecting the interests of investors and maintaining the integrity of the financial system. The Banking Act, Company Act, and Deposit Insurance Act do not specifically apply to structured ILP funds, making the Code on Collective Investment Scheme the correct answer.

Participating products are unsecured debentures means that these products do not have any collateral or security backing them. This implies that the investors who purchase these products are not guaranteed any repayment in case of default or bankruptcy of the issuer. Therefore, the statement is true as it correctly describes the nature of participating products.

A reverse convertible bond is a type of structured product. This means that it is a financial instrument that is created by combining multiple assets or derivatives to create a specific investment strategy. In the case of a reverse convertible bond, it is typically a bond that pays a higher interest rate than a regular bond, but also includes an embedded option that allows the issuer to repay the bond in cash or stock. This structure allows investors to potentially earn a higher return, but also exposes them to additional risks.