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Finance: What is a PERLS? 9 Views


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Description:

PERLS is a bond that pays interest twice a year, but whose yield is linked to a given foreign exchange rate. It also doesn't string very well on a necklace.

Language:
English Language

Transcript

00:00

finance a la shmoop what is PERLS all right well there's the kind that comes

00:07

in nuggets of wisdom the kind that sings and the kind you wear and none of them [Woman in a fancy dress]

00:11

have anything to do with this kind of pearls, PERLS stands for principle

00:15

exchange rate linked security right well what is it it's just a normal issue

00:20

bonds that pays interest twice a year but whose yield is linked see the L

00:26

there to a given foreign exchange rate the base currency in pearls is the US

00:31

dollar but the interest rate paid is based on a foreign ie

00:35

non US currency and the way that it's linked has a whole lot of flexibility in

00:40

real life so we'll just go through one example here say a set interest rate is [Man discussing PERLS]

00:45

five percent on a thousand dollar pearls if interest were paid in US dollars well

00:50

then everything would be easy you just take grand times 0.05 and you get 50

00:55

bucks twice a year and that's what you'd be getting as interest if you owned that

00:59

pearls easy it's just a bond but it's a little different with the pearls in that [Person pushes Easy button]

01:03

if interest is being paid well say in Euros for example and let's say the euro

01:08

is trading at 80 cents on the US dollar or rather you can buy a euro for 80

01:13

American cents while you'd be then collecting interest on that thousand [American coins and a 1 euro coin appear]

01:18

dollar bond in euros in this case that is instead of five percent on the grand

01:22

paid at 50 bucks well you'd instead get 60 euros because a single US dollar buys

01:28

you 1.2 euros at this exchange rate moment in time and pearls can be set up

01:33

in a variety of ways like the interest rate itself can fluctuate like you could

01:38

get a fixed number of euros per thousand dollar bond issue or other currencies or

01:44

other elements or securities that it could be linked to really complex and a

01:47

north whole lot of study here in this video so what yeah sadly you can't pay [Shmoogle search bar appears]

01:51

your interest in pearls of wisdom but you know what they say money can't buy

01:55

happiness unless you have an Amazon Prime account and there's a half-off [Elderly woman talking to children]

01:58

Memorial Day yeah you know a special discount that one's a freebie

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