Investment Products
Dual Currency Murabaha
Dual Currency Murabaha (DCM) is a Short-term liquidity management product that allows investors to earn a higher profit rate on their short-term surplus funds.
The components consist of a regular Commodity Murabaha transaction and a Unilateral Promise (Wa’ad) by the client to purchase a certain currency at a pre-agreed rate on the maturity date.
Benefits
- Attractive profit rates
- No Foreign Exchange fee
- Flexibility
Risks
The Principal might be converted into the alternative currency at the pre-agreed strike rate and not at the spot exchange rate prevailing at maturity.
If the principal gets converted into the alternative currency and if the client wishes to convert the repaid principal back into the initial investment currency at the spot foreign currency exchange prevailing on maturity, the amount of the principal in the initial investment currency may be lower than the amount of the original investment.
** Indicative Profit Rate matrix
Dual Currency Murabaha Reports
Example
Client invests USD 5.0 m in a Dual Currency Murabaha for 1 month with the following details:
| Base Currency: | USD |
| Amount: | $5.0M |
| Alternate currency: | EUR |
| Tenor: | 1 month |
| Strike: | 1.24 |
We can offer to the client to enter in a Murabaha in USD at a profit rate of 7.25%p.a. in exchange of the client granting the right to the bank to sell him Euro at 1.2400 at maturity (Wa’ad).
Scenario 1:
If at maturity the EUR/USD is higher than 1.2400, the client will receive his principal and profit in USD.
Calculation:
USD 5,000,000 + (5,000,000* 7.25% * 30/360) = USD 5,030,208.33
Scenario 2:
If at maturity the EUR/USD is at or lower than 1.2400, the client will receive his principal and profit in EUR converted at 1.2400.
Calculation:
USD 5,000,000 + (5,000,000 * 7.25% * 30/360) = USD 5,030,208.33
USD 5,030,208.33/ 1.2400 = EUR 4,056,619.62