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One of the financial issues faced by the Hong Kong dollar is the risk of currency depreciation as the Hong Kong dollar is linked with the US dollar. And as the US dollar has depreciated in value against other currencies, so has the Hong Kong dollar. We have seen the Hong Kong dollar depreciate against Australian, New Zealand, Canadian, Singaporean, Malaysian and Thailand currencies - just to name a few in the past 10 years. Foreign currency trading is considered one of the ways to better preserve monetary assets for combating depreciation risk. Hedging against depreciation with foreign currency trading has its benefits, as foreign currencies are generally less vulnerable to market volatility than investment tools such as equities. Adding to the fact that market information of foreign currencies is more accessible, and given their higher
interest rate when compared to that of the Hong Kong dollar at present, investment in foreign currencies may deliver a higher yield. Apart from direct trading, currency-linked deposit is another popular foreign currency investment tool in the market.
| Put simply, currency-linked deposit is a deposit of the currency on hand, which is linked with a selected currency option. The aim is to capture the opportunity to earn higher potential returns through currency option. If you want to convert the deposit currency into linked currency, you can exchange the currency at strike price which is lower than the spot currency exchange rate when built in, without having to pay the spread by currency conversion. There is a series of maturity options ranging from one or two weeks to several months. Investors can also select from a wide variety of deposit currency and linked currency. |  |
Even if the performance of linked currency at maturity does not match the expectations and investor would receive linked currency, they can choose to hold on to the currency until the rate appreciates and the agreed premium interest rate can also offset part of the loss in exchange rate. |
 If you are interested in foreign currency investment, or in need of the linked currency, for example when you are planning to study aboard, or willing to take risk of foreign exchange and currency option in return for better
exchange rate on linked currency at maturity, you can consider to invest in currency-linked deposit. But before making any investment decision, you are advised to carefully consider the features and risk exposure of the product. There are some robust financial organizations in the market that can provide you with all-rounded foreign currency investment services in the market at your interest.
 - Refer to technical analysis on currency market for major support and resistance levels prior to setting the strike rate (the exchange rate used to receive the linked currency) to minimize the risk of receiving the linked currency.
- If a market trend is identified for a foreign currency, a longer deposit period (if you can tolerate liquidity risk) can be locked to gain potential higher return over a longer stretch of time.
- If market predicts an increase in interest rate for a specific foreign currency, the value of that currency will usually appreciate due to active trading. Therefore, if you select that currency as the linked currency and set the maturity date before the commencement of central bank's rate meeting, the chance to receive that linked currency may be comparatively low.
Risk Disclosure:
The above information is for reference only and does not constitute any offer, solicitation or recommendation to the purchase or sale of any investment products or services. Investment involves risk. Although investment may bring about profit opportunities, each type of investment product or service comes with its own risks. Due to the fluctuating nature of the markets, the prices of products may rise or fall beyond customers' expectations and customers' investment funds may increase or decrease in value as a result of selling or purchasing investment products. Loss may equal or exceed the amount of the initial investment. Income yields may also fluctuate. Due to market conditions, some investments may not be readily realizable. Before making any investment decision, customers should assess their own financial position, investment objectives and
experience, willingness and ability to bear risks and understand the nature and risk of the relevant product. For details of the nature of a particular product and the risk involved, please refer to the relevant offering documents. Customers should seek advice from an independent financial adviser.
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