What is a Dual Currency Deposit?
A Dual Currency Deposit (DCD) is a hybrid product that combines an investment strategy and a foreign exchange component.
How It Works
- A cash deposit is made in one currency (CAD or USD) for a specified term.
- The yield and a foreign exchange rate against the other currency (USD or CAD) is agreed upon. The conversion rate will typically be more favourable than the prevailing spot rate.
- At maturity, the deposit and the earned interest is returned in either the original currency or converted to the other currency at the agreed upon rate. The currency returned is determined based on whether the DCD Conversion Rate is below or above the market rate at maturity.
See example scenarios.
Advantages
Earn a significantly higher yield than a conventional term deposit
The potential to receive an exchange rate that is significantly better than the prevailing spot or forward rates
You can specify your desired conversion rate or your desired yield
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Who should consider DCD?
Who should consider DCD?
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Limitations & Risks
Limitations & Risks
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Variations
Variations
Who should consider DCD?
- Businesses that have a large balance sitting in a USD or CAD account.
- Businesses looking for a higher interest rate on a deposit (currently 3% on average).
- Businesses that have a need for another currency and is comfortable with the deposit being converted to another currency.
- Businesses that are able to book a deposit for a minimum of $250,000.00.
Limitations & Risks
Although the conversion rate is better than the prevailing spot rate at the start date of the deposit, at expiry it may be less favorable than the prevailing spot rate.
The deposit is a fixed term deposit. Therefore, cannot be withdrawn or converted to another currency prior to expiry without incurring additional costs.
The currency returned is determined based on whether the DCD Conversion Rate is below or above the market rate at maturity.
Variations
You can specify your desired conversion rate or your desired yield, but not both.
- The closer the conversion rate is set to the current spot rate, the higher the yield of the DCD will be.
- The higher the yield required on the DCD, the closer the conversion rate will be to the current spot rate.
Example Scenarios
|
Deposit Currency & Amount
|
US $250,000
|
|
Other Currency
|
CAD
|
|
Deposit Term
|
2 weeks
|
|
Market Deposit Yield
|
0.10%
|
|
Market Forward Rate
|
1.2500
|
|
DCD Conversion Rate
|
1.2590
|
|
DCD Enhanced Yield
|
3.0%
|
|
Interest Amount (US$)
|
$292
|
The deposit and interest earned will be returned to you
in USD
(US $250,000 + US $292 = US $250,292)
The notional and interest earned will be converted at 1.2590 and
returned in CAD
(US $250,292 x 1.2590 = CA $315,117)
|
Deposit Currency & Amount
|
CA $500,000
|
|
Other Currency
|
USD
|
|
Deposit Term
|
2 months
|
|
Market Deposit Yield
|
0.10%
|
|
Market Forward Rate
|
1.2500
|
|
DCD Conversion Rate
|
1.2410
|
|
DCD Enhanced Yield
|
3.0%
|
|
Interest Amount (CA$)
|
$1,233
|
The deposit and interest earned will be returned to you
in CAD
(CA $500,000 + CA $1,233 = CA $501,233)
The notional and interest earned will be converted at 1.2410 and
returned in USD
(CA $501,233 / 1.2410 = US $403,894)
Recognition & Accolades
More info:
Canadian FX Service Quality Leader