I was reading an article enticingly entitled “Boost Your Returns” in the latest issue of SmartMoney magazine. My eyes skimmed down to a section on certificates of deposit. I like CD’s. They’re FDIC insured and provide a small but certain return.
CD’s as derivatives
But, whoa, not these CD’s. The SmartMoney article is about CD’s that are indexed to various assets. One highlighted CD is pegged to the value of BRIC currencies. If the value of the foreign currencies rise, I receive an interest rate that is a portion of this growth. If the currencies fall, relative to the dollar, then I receive no interest, but I do get the principal back at the end of the term. Huh? Why would I want to do this? What does the average person know about the Brazilian real, Russian ruble, Indian rupee, or Chinese renminbi? And by average, of course, I mean me. Read the rest of this entry »
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