What are Structured Products?

Today we will learn what structured products are.

Looking at my screen right now and i can see that i probably need to adjust the anyhow. i’m sure it will be fine and hopefully it doesn’t scare anyone too to do is we’re going to learn about the basics of structured products. so what learn all about structured products i’ll make a few videos on this topic and put is released hopefully you’ll be able to see a link to a linked

Playlist above on product a structured product also called a structured note is an investment structured products is to provide an investment payoff this attractive to fixed income markets. now i’ve watched a on youtube on the topic of structured products and they’re kind of interesting, they’ll just tell you they’re wonderful these their bank and you know that they provide

All sorts of amazing investment practitioners people a little bit like me and did they tell you all of the because they’re overpriced and a bunch of different reasons and i guess the just how they work and why they’re there and we will talk a little in them, but it is a big business for banks, it’s a big business in finance and people want to structure them because it’s quite

Profitable to do so. anyhow option investors are able to receive bond like minimum returns with potential way a lot of the people who criticize them like i would look at a product like as a package when i could just buy them as separate products but of course these managed a hedge fund and things like that so it’s not a product that’s those kind of products in any other way

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So structured products are in theory any to provide a specific risk exposure to suit customers needs now the structured products provide a means for investment banks to issue debt for existence of structured products like we’re talking about in this video one of bonds which are in fact also a hybrid security which means just part bond and banks to give investors something

In exchange for a lower interest rate on to value but offer unique and sometimes quite attractive payoff profiles and became very profitable for the issuer so that probably tells you an awful lot of easily but of course the downside of that is that the banks are making an in practice how these things work is that there’s usually a combination of a see on screen right now a

Common example of the basic components of a structured trading and pricing financial derivatives and i’ve link to that in the learn about derivatives that might be a good way combined with these videos but the end investors what that means is that an investor who invests a thousand back at maturity now of course since there’s no such thing as a free lunch in their money in

The cases where they receive only their initial investment they claim they didn’t lose anything but only getting your money back after 10 years isn’t really a great return in a invests $1,000 at inception the issue in counterparty which is usually an payoff at the end of year five zero coupon bonds paying off $1,000 in five day one and the cash differential is the amount

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That the issuing bank can take a hopefully pay off provide the potential of a payoff to the investor now in the only their initial $1,000 back which was financed by the zero coupon bond in the thousand dollar investment back plus whatever the payoff of the option was – on screen right now you can see the principal guarantee payoff composition earning and interest rate on

Their initial capital investment investors put they will not have any losses in nominal terms but under certain economic of products are risk exposures can be put into the investment package of a products have principal guarantees or principal protection however not all of guarantees a minimum return at the end of year 5 of $1000 this is designed to incurred however due to

The forgone risk-free interest over five year period inflation and an investor would have been better off having invested at the counterparty risk in particular the counterparty that is making the government backed guarantees instead their investment bank backed guarantees exposures underlying structured products are as varied as the structure as exposures to the performance

Of egg commodities foreign exchange interest first appeared in the united states but never really gained wide reception in investor to read and sign an options disclosure document in order to trade or options clearing corporation issues a 183 page form that’s called the form if you wanted to see what it looks like this form is known as the od d or requirement to sign off

On having read and understood this document and this states because essentially it tells you all of the risks that you’re taking and that the idea is that people investing in products really understand them and isn’t this requirement and these things are just sold to unsophisticated retail much stronger retail customer protection significantly reduce the proliferation in

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Europe where 96% of retail structured products are sold with some of the as an alternative to savings accounts pending european union rules will soon the european parliament and the council proposed mandatory disclosure to retail information on the features far more clearly stating the bank’s structuring of structured products these enhanced disclosures will most likely

Help united states it will probably scare quite a few of them away if you tune proportion portfolio insurance which is a type of structured product and the what kind of fees are embedded in them make sure you hit the like and subscribe

Transcribed from video
What are Structured Products? By Patrick Boyle

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