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Watch those margins

When banks develop fancy new structured products, they usually describe them as value-added, yield-enhancing solutions that do everything a client could possibly want except, perhaps, washing the dishes. No discerning investor or corporate should be without them.

So consumers of structured foreign exchange options may be interested to learn what one banker said about them in a meeting with Euromoney last month. It was a touchingly honest moment.

"Obviously, we want to steer clients away from the more vanilla end of the market towards these structured products," he said. Obviously indeed! How sweet of him to have his clients' financial interests so close to his heart. But then he added: "...because with those products the margin is less obvious."

In other words, we take standard options, sprinkle on some confusing jargon, add a clever equation on the end and hey presto - the client gets a clever version of a normal risk management instrument and we get a hefty fee. What's more, the client doesn't even notice.

A brief awkward silence followed before he said: "Of course, I wouldn't like you to print that."

We're sure he wouldn't.

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