Selling a put option

When you invest in a Dual Currency Investment, you are selling a Put option. How does it work?

1. You place your money in fixed deposit in the foreign currency at an interest rate of x%
2. You give a put option to the bank to pass them the appreciation in the foreign currency for y%.
3. You take the risk of a fall in the foreign currency.

You get a total return of x% + y% from the investment. This is higher than the interest (x%) on the deposit in foreign currency.

Are you getting the correct price (y%) for the put option? Quite likely, you are getting much less than the true price for the option.

For example, if the value of the put option is 2% (i.e. to compensate you for the risk), you may be offered only 0.5%. The remainder (i.e 1.5%) goes towards the expenses and profit of the bank.

As you are not familiar with the correct price of the put option, it is best that you avoid this type of investment completely.