Dual Currency Deposit transaction (DCD), is the overall term used for the transaction where the Bank pays a premium in exchange for buying the option, while securing the deposit amount as collateral.
DCD is an options transaction in which the Bank pays you a premium for the FX option you have sold to the Bank that gives the Bank the right to buy a specified currency (USD, EUR, TL, GBP, etc.) at a predetermined exchange rate on a specified date. The total amount involved in the option is linked to a time deposit account for the same term which also allows you to earn interest for that period.
- By taking a foreign currency risk, high returns can be obtained.
- If at maturity, expectations regarding the exchange rate turn out to be inaccurate, a loss of principal occurs.
- The amount involved in the transaction cannot be cashed in before maturity.
- Example of Calculating Returns
Transaction Amount: USD 100.000
If at a given date, USD/TL exchange rate is 1,6000 (spot price), and at the end of 1 month if you think that the exchange rate will not go above 1,6500 (exercise price), or even if it does you find it acceptable to convert your USD 100.000 to TL at an exchange rate of 1,6500, you can sell the right to buy your USD 100.000 at 1,6500 to our Bank. In exchange for this right, you can earn an annual net amount of deposit interest and options premium in USD.
Term: 31 days (1 month)
Spot Price: 1,6000
Exercise Price: 1,6500
Options premium + Deposit Interest: 15% (Annual and Net)
At the maturity date: At the end of 1 month, at 14:00, the USD/TL exchange rate is taken into account.
If the USD/TL exchange rate is below the exercise price (1,6500); The Bank does not exercise the option right and along with USD 100.000 (principal), 100.000x31x15/3600 = USD 1.274 is credited to your account as payment for premium and deposit interest.
If the USD/TL exchange rate is at the exercise price (1,6500) or higher; The Bank exercises the option right and along with 100.000x1,6500 = TL 165.000, USD 1.274 is credited to your account as payment for premium and deposit interest.