|How do CEE government bonds work?||CEE government bonds are primarily issued in the form of fixed-rate securities. Their dividend (i.e. coupon) is usually paid once a year. At the end of maturity, the bond is redeemed in full. This means that you, as investor, know exactly how much interest you can expect and when you will receive the initial investment back. If you buy government bonds in foreign currencies, i.e. so-called foreign bonds, you should take the currency risk into consideration.|
|How do international government bonds work?||You buy an international government bond at its issue price as security with fixed or floating interest rate. The interest (coupon) is paid annually. At the end of maturity the bond is redeemed in full. Your advantage as investor: you know right from the start what amount you will receive at the end of the term. If you buy government bonds in foreign currencies, i.e. so-called foreign bonds, you should take the currency risk into consideration.|
|How do capital guarantee products work?||If the underlying instrument goes the expected way, you participate in its performance and receive an attractive bonus return on top of any minimum return agreed on. Your participation in the development of the underlying tends to be partial, or up to a certain cap. In return the issuer grants you the capital guarantee. If the underlying goes against expectations, the capital invested is still safe and you receive a minimum payment in accordance with your agreement. Depending on the structure, you may also benefit from sideways or negative movements of the underlying on top of the return you may have earned from its price increases.|
|How do index/participation certificates work?||Index/participation certificates are issued at a certain exchange ratio relative to the underlying instrument. Most often they are traded at 1:100 or 1:10 to the index. This means that if for example the ATX is at 3,700 points, one index certificate with an exchange ratio of 1:100 to the ATX costs EUR 37. In case of a participation certificates, the underlying is not an equity index but for example a commodity. By the way, index/participation certificates are a cost-efficient form of investment in that they come with no load or management fee.|
|How do discount certificates work?||The potential return from discount certificates is capped. In return for this cap (and thus, for the unlimited potential return), the investor gets to buy the specific underlying at a discount. This means that you pay a lower price for the discount certificate than you would pay for investing directly in the underlying. At the end of maturity the current price of the underlying instrument is paid out (while bearing in mind the exchange ratio), with the cap representing the upper limit of the payout. The cap is set at the beginning of the term, remains constant over time, and marks the maximum return potential.|
|How do bonus certificates work?||The bonus level which determines the bonus payment is set above the current price of the underlying at the issue of the certificate. The barrier is set below the initial value. If the specific certificate comes with a cap as well, it is set at or above the bonus level. The redemption at the end of maturity hinges on the development of the underlying. The following two cases can occur: If the underlying does not fall to or below the barrier, the investor receives at least the bonus level payment. If the price of the underlying is higher than the bonus level at the end of period date, s/he receives the higher payment out of the two. The cap, if any, determines the maximum payout. If the underlying does fall to or below the barrier at least once during the term of the certificate, there will be no bonus payment. The investor gets the performance of the underlying paid out at the end of maturity (limited by the cap, if any). Depending on whether the price of the underlying is below or above the issue price, the investor suffers a loss or makes a profit.|
|How do reverse convertibles work?||Reverse convertibles come with an initially set fixed coupon at the end of maturity that pays substantially higher interest rates than the market. If at the end of maturity the market price of the underlying is above the strike price fixed at the beginning of the term, the reverse convertible is redeemed at its nominal value plus coupon. If the share price is below the initial value, the investor receives a physical delivery of the share plus the payment of the coupon. The number of shares to be delivered per nominal value is set at the beginning of the term. In the case of the multi reverse convertibles which has more than one shares as underlying, redemption is based on the share with the worst performance. If at the end of maturity the price of this share is above its initial value, the bond is redeemed at its nominal value plus its coupon. If at the end of maturity the price of the share with the worst performance is below its initial value, the investor receives the share by means of physical delivery, plus the payment of the coupon. The number of shares to be delivered per nominal value is also set at the beginning of the term.|
|How do express certificates work?||Express certificates combine the chance of an attractive yield on the redemption prior to total maturity with the protection provided by an integrated safety cushion. The size of the redemption depends on the development of the underlying instrument (share, commodity, index). At the beginning of term, the initial value is set. Every year on the reference date, this value is compared with the current price of the underlying. If the price is at or above the value set initially, the nominal value plus the fixed coupon (in this example, 10%) is automatically redeemed. If the price is below the initial value, the term of the certificate is automatically extended by one year. The same procedure happens in the second year. If the current price of the underlying now exceeds the initial value, the investor receives the redemption in the form of the nominal value plus twice the fixed coupon (in this example, 20%). Otherwise the term of the certificate is extended by another year, and the investor has the chance of receiving a triple coupon at the end of the third year (in this example, 30%). If the underlying is also quoted below the initial value at the end of the third year, but if it is above the barrier, the certificate is redeemed at its nominal value. The investor has not incurred any losses in this case. It is only when the price falls below the barrier that the investor incurs a loss. In this case the redemption equals the actual development of the underlying instrument.|
|How do turbos work?||Turbos come with an inbuilt leverage effect. The price movements of the underlying are reflected relatively independent of volatility. If the price of the underlying instrument rises, the price of the turbo long/short rises/falls according to the chosen leverage at a disproportionate level. The leverage effect results from the lower purchase price of a turbo relative to the direct investment in the underlying. The lower the purchase price of the turbo, the bigger the leverage. Turbos have a strike (base) price and a barrier. The intrinsic value of the turbo is the difference of the share price and the strike price (turbo long) or the difference between the strike price and the share price (turbo short), respectively.|
|How do warrants work?||A call warrant gives you the right to buy the underlying instrument at a later date for an agreed price. Of course you will only want to exercise this right if the price of the underlying is higher than the strike price (“in the money”). This way you could buy the underlying instrument from the issuer at the strike price and sell it on at the currently higher price on the stock exchange. If the price of the underlying is at (“at the money”) or below (“out of the money”) the strike price, it does not make sense to exercise the purchase right. In this case you would lose your invested capital. The picture looks exactly the other way around for a put warrant. Here you get the right to sell the underlying instrument at a later date for an agreed price. You will only want to exercise this right if the price of the underlying is below the strike price (“in the money”). In this case, you can buy the underlying instrument on the stock exchange and sell it to the issuer at the higher strike price. In practice, instead of the actual delivery of the underlying instrument the transaction tends to be settled in cash by paying the difference between the price of the underlying on the day of exercise and the strike price. Warrants give the investor the chance to benefit at disproportionately high rates from fluctuations in the price of the underlying. This leverage effect is due to the relatively lower capital investment involved in the purchase of a warrant in comparison with an investment in the underlying instrument.|
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