Financial Instruments > This
Utilizing foreign fixed
deposits (CD's) for credit lines
The client can utilize their
Certificates of Deposit (CD's) as "Proof of Funds" and can then
use these against a 'Line of Credit'. The line of credit is generally
eighty (80%) percent of the face amount of the CD, but can vary with each
We need to caution the client
in using these, especially on large sums of money. This requires
pre arrangement with a large Forex rated international bank. The
CD's would have to be blocked, say for five (5) years. The issuing
bank would then have to agree in advance that a line of credit would be
drawn against the CDs, say for eighty (80%) percent of the face value.
In some cases, a second bank
may be required, say in Europe, at which time a line of credit is drawn
against the 80 percent, again for 80 percent. This allows each bank
to utilize a portion of the funds for their use, and still gives the client
the 'Cash' needed.
certificate of deposit procedure for foreign based clients:
Client agrees to deposit
money via wire transfer (SWIFT) in US Dollars only into a "Certificate
of Deposit (CD)" in a foreign Forex rated international bank
with a "Branch" office in client's home country. Example:
A Japanese client would deposit funds in a foreign bank located in
A 'Pre Arrangement' must
be made with the bank before contacting them. Therefore,
the client should NOT go directly to the bank themselves. The
bank arrangement would
require blocking the funds generally for a period of five (5) years.
The bank would agree to allow a 'Credit Line' to be drawn against
the CD or CDs. Generally, this is around eighty (80%) percent
of the face deposited amount.
Once everything is arranged
at the foreign branch bank in the client's home country, the money
is transferred. The Bank issues a standard Certificate of Deposit
(CD) as receipt and indicates the terms (time and interest).
The Deposit Bank may
require holding this CD for 1 to 4 weeks before allowing a "Line
of Credit" to be drawn against the funds.
With market conditions
fluctuating world wide as they are, the 'Deposit Bank' may also require
a portion of the money to be held as additional security, say 20 to
The CD becomes the client's
"Proof of Funds" required by the Asset Manager.
The Asset Manager (often
times referred to as the 'programmer') arranges a line of credit on
behalf of the client either directly with the receiving bank or through
another large Forex bank, which would probably be located in Europe.
The European Bank may require
holding their own asset line. If they do, generally
you receive eighty (80%) percent of their amount with receiving bank.
The client's in country foreign
branch bank may not want to issue one single large CD, and may require
several CD's to be issued, depending on the sum of money deposited (amount
of funds). This is not a problem for the Asset Manager. Also,
many countries such as Japan may require an Export License because the
funds have been converted to US Dollars and even though the receiving
bank is in the client's home country, it is still considered transferring
funds to a foreign bank.
of how the transaction might work:
Client deposits or has
on deposit 100m US dollars which is in CDs in a foreign bank
in Tokyo, Japan
The client issues the
CDs to the Asset manager who in return arranges a 'Credit Line' for
approximately 80% (80.0m US Dollars).
If the European Bank
does not require a 2nd credit line the value of the investment asset
or cash is 80m. If, however, the European Bank were to request
a 2nd credit line, also lets say at 80%, the NET amount would be reduced
to 64m US dollars.
The CD can be 'Cashed'
outright, or a 'Credit Line' can be raised against the CD.
The CD after it is 'Cashed'
can be put into a High Yield Roll Over Program for Investments (Hyrop).
The minimum investment return on a Hyrop to the 'Client' is approximately
fifty (50%) percent.
Please see what are "High
yield roll over programs".
CDs are usually issued
to individuals, but can be held by a corporation, trust, endowment,
nominee, pension fund, non profit entity, etc. as collateral.
CDs may be in any 'Currency',
but conversion to US Dollars is generally required and accepted.
In some cases the currency may be converted to a third currency.
It is generally easier
to raise a 'Credit Line' than convert the instrument to CASH!
Fluctuating World Market
Conditions set the pace and determine the trading value, if any.
Usually most every instrument
can be converted, however, some are just Not desirable
Trading Instruments on the current World Market.
is needed for this type of transaction.
Currently almost any CD is welcome, regardless of the currency, as
long as the currency issued is traded on the International Monetary Exchange,
and there are No restrictions from issuing country.
Recommended further reading:
of Deposit: Large Negotiable Certificates of Deposit
Certificates of Deposit: Advantages of certificates
of deposit (CDs)
Certificates of Deposit Offerings
U.S. Certificate of Deposits
Books on Financial