ASSIGNMENT 1 Existing Competitive Solutions Product Description

An exchange traded product (ETP) that consists of an ADR along with a currency hedged postion that can be bought and sold just like an ADR.

Customer Description

Institutional and retail investors who utilize ADRs as a way to gain foreign market exposure.

Direct Competitive Solution

Buy currency derivatives & ADR seperately Buy currency Exchannge Traded Fund & ADR seperately Buy ordinary shares in the local market

Indirect Competitive Solution

Buy ADR and do not hedge Buy currency hedged index ETF (example: DXJ)

ASSIGNMENT 1 Competitive Profile

Direct Competitor
Existing Solution 1: Product Description: Primary Target Customer: Primary Product Objective:
Currency forward & ADR

Indirect Competitor
Existing Solution 1: Existing Solution 2:
Currency-hedged equity ETFs

Existing Solution 2:

Currency ETF & ADR

No hedge

Large institutional investors

Institutional investors, including SMA PMs

N/A

Institutional & retail investors

To lock in an exchange rate for an agreed future point in time

To provide exposure to a single currency or basket of currencies

N/A

To provide access to basket of overseas securities without currency exposure

Why do customers use the product?

To offset the currency exposure in another investment

To get exposure to a currency without investing in derivatives may be used to offset currency exposure elsewhere

They believe currency exposure is zero-sum

They cant access the tools to hedge

They want exposure to the underlying securities but not the local currency

What do customers like about the product?

3. 1. Cash settled at expiry (no upfront payment) Familiar Limited flexibility in duration length of contract agreed in advance. Prohibited for SMA managers 1. 2. Easy to transact and trade Transparent pricing No additional costs

2. 1.

One-stop solution to access a market or industry segment Listed and exchangetraded

What do customers dislike about the product? What is the products competitive advantage?

1.

2.

Not easy to construct/maintain accurate hedge

Fully exposed to currency which might impact on investment choices

No flexibility over basket constituents

Existing market penetration it is the go-to product for currency hedging

Exchange-traded so accessible and transparent

N/A

Exchange-traded so accessible to all investors

1.

What are three (3) assumptions that you have about the competitive product?

1. 2.

3.

Primary used by large customers May be outsourced or managed in-house Typical cost is difficult to identify

2. 1. Not widely used by smaller investors 3.

Some investors believe ADRs are already hedged SMA managers may be forced by their mandate /regulation into not hedging Non-hedgers may be attracted to hedging if it could be applied tactically

1. 2. 3.

Limited product range Effective currency hedging Process of currency hedging is not transparent

Total Number of Customers Interviewed: