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this structure can be decomposed into:
1. plain vanilla housing loan
PLUS
2. deep out of the money call option on MSCI Free Index.
i note that the interest rate of SIBOR + 1.1% is slightly higher than what other banks offer (i have seen some SIBOR + 1% packages). Thus, HSBC could be using the extra 0.1% markup to purchase the deep out of the money call option (more likely, they are using 0.05% markup to purchase and pocketing the other 0.05% as profit).
nobody will structure something without profiting from it. remember this. no free lunch.
ReplyCan’t believe, either that this kind of complex retail product is still allowed, or that any person would have interest in it for the reasons mentioned. The potential upside is very distant, and no apparent downside, so in fact it is simply a marketing ploy. But I do wonder at HSBC, exactly what message they think they are sending, encouraging borrowers to gamble on the stock market? Meanwhile the FSA is relentlessly tightening regulation of the mortgage market in the UK, widening the gap further with other markets.
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