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Structured products

There is no single, uniform definition of a structured product. Structured products are pre-packaged strategies that are based on derivatives, and may include securities, a basket of stocks, an index, a commodity, debt issuance and/or a foreign currency, among other things. They include index- and equity-linked notes, term notes and units, and generally involve a contract to purchase equity and/or debt securities at a specific time.

Some structured products have a principal guarantee, which offers protection of your principal if held to maturity. Structured notes provide investors with an opportunity to take advantage of the direction of interest rates but also the volatility, range, term (i.e., long-term vs. short-term rates), and direction of commodity and equity values.

For example, if an oil company wants to borrow money, it may choose to issue a structured note with the interest payments tied to the price of oil. As oil goes up, its cash flows increase and it finds it easier to make the interest payments. When oil prices go down, its interest burden decreases.

Structured products were created to meet specific needs that cannot be met from the standardized financial instruments available in the markets. They can be used as an alternative to a direct investment, as part of the asset allocation process to reduce risk exposure of a portfolio, or to utilize the current market trend.

Ask your Macquarie Private Wealth Investment Advisor for more information on these complex and sophisticated investment options.


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