TABLE OF CONTENTS To their proponents, structured products offer the investor the opportunity to enjoy higher returns than would be possible with traditional money market instruments; and they do so at short notice. Right? Wrong. This is an absolutely undocumented statement. It says nothing about the amount of assumed risk, and the 'short notice' is typically six years long: too much in living with structured derivatives. Moreover, the investor does not retain anything more than a promissory note by the bank that:
He or she will get back the capital at the end of the product's life cycle, and
This will happen only if, in the meantime, the institution giving the guarantee does not go bankrupt.
As an example of imaginary benefits to whose questionable existence investors should be alert, the sellers of structured derivatives say that the buyers can 'successfully' react to short-term market developments, and even create their own specific structure solution geared to their precise needs.
The best way to answer such lightweight arguments is through that joke often heard in Las Vegas, that you stand a good chance of making a small fortune through gambling, provided you start with a big one. Even gambling needs skill, and conveniently the aforementioned sales gimmick forgets that the typical investor does not have the know-how necessary to:
'Determine' forex income derivatives transactions, and
Calculate the risks associated with them which, by any count, is a must.
The only thing the average investor is sure to get from structured products that...
