HiIt's my first post. A question to FX structurers: I am in the process of putting togheter my first FX linked EMTN and I am quite shocked in terms of how small margins my FX traders are embedding in these products (My background is IR, credit and equity derivatives structuring).Ok, here is the issue : the EMTN (issuer AA) is a 3 months capital protected EUR denominated range bet i.e. if USD/EUR stays in a range you get say 8% coupon , if the USD/EUR touches or brake the range you get nothing.Typically how much margin would a bank make on such a product ? Many thanks in advance.RgdsP

Typically how much margin would a bank make on such a product ? >>As much as they think you will pay. No in all seriousness it really depends on what they are doing for you. I am guessing that since it is an MTN with a principal guarantee that is a AA rating the bank is issuing it from their shelf. That is a point right there. If it's coming off of their shelf they probably would like to have some control over the sales of the products. That's another point right there. The payout structure may not be familiar to the bank's accounts so they may demand extra sales concessions to move it. Also if they are backstopping the contingent payout you could get dinged for another Half Point. All in all I wouldn't be shocked to see you paying three to four points on the deal. It all depends on the structure of the note and what the bank is doing for you. Feel free to private message me if you have any more questions.

I am quite shocked in terms of how small margins my FX traders are embedding in these products >>I make one small addition to RowdyRoddyPiper's excellent reply to address this one point.From a pure FX point of view, a binary knockout option on three-month USD/EUR is almost a vanilla instrument. It's easy to hedge in the context of a normal FX derivative trading book. Therefore, the FX traders should not be jamming margin into this quote. Go out five years, or make it MXP/AUD or stick in a chooser option; and you'll see a much bigger FX margin.I expect almost all the margin will come on the credit/structuring side; plus as RRP says; from the salesperson's idea of what the customer will bear.

Hi,Many thanks to both of you for your answers. After looking at the structure in detail I found out that my trader used a wrong funding level for the EMTN !!!! The key to the entire story is that short term funding spreads can be very versatile (not to say volatile ) due to the fast changing short term capital needs of the bank.Neverless, the margin is still small (as mentioned short maturity + relatively simple instruments + liquid underlying+ FX derivative market is fully matured) but now in line with my expectations.CheersP