JPMorgan's currency-linked notes seen indicating continued weakness in U.S. dollar

By Sheri Kasprzak

New York, Aug. 28 - JPMorgan Chase & Co. negotiated the terms of $3.495 million in principal-protected notes linked to a basket of four currencies.

JPMorgan also announced the terms of a $23.615 million offering of buffered return enhanced notes linked to a basket of Asian equity indexes.

The currency-linked notes, according to one market insider, indicate that, at least according to JPMorgan, the U.S. dollar could face continued weakness.

"The strategy is that the dollar will fall against these four [currencies]," said the equity structurer, based out of New York. "It's really hard to tell for certain so it's an interesting structure. There has been some improvement in the dollar against some of these currencies."

Among the currencies in the basket to which the dollar has improved, the market insider noted the Brazilian real.

On Tuesday, the real weakened to 2.00 versus the U.S. dollar on continued woes in the U.S. housing market.

Terms of currency notes

The one-year notes are linked to equal weights of the Brazilian real, the Indian rupee, the Mexican peso and the Turkish lira.

Assuming the ending basket level is equal to or greater than the starting level but less than 107.5% of the starting basket level, the investors will receive the contingent coupon, which is $75 per $1,000 note. If the ending basket level is greater than 107.5% of the starting basket level, the investors receive par times the basket return, times the participation rate, which is equal to 100%.

The investors receive par at maturity if the ending basket level is less than the starting basket level.

Currency exchange rates

A month ago, the real was trading at about 2.15 to the dollar. The real closed at 1.987 versus the dollar Tuesday.

On Tuesday, the rupee closed at 41.1 per U.S. dollar, compared with 40.1 a month before.

The peso ended at 11.099 to the dollar Tuesday. The peso had traded at 10.7 a month ago.

The Turkish lira closed out Tuesday at 1.3402 versus the dollar, compared with 1.0358 a month prior.

JPMorgan's index-linked notes

The notes linked to the Asian stock index basket have a one-year term.

The basket includes a 15.25% weighting of the Amex Hong Kong 30 index, a 23.9% weighting of the FTSE/Xinhua China 25 index, a 30% weighting of the Kospi 200 index, a 9.15% weighting of the MSCI Singapore index and a 21.7% weighting of the MSCI Taiwan index.

The notes pay double the appreciation of the basket, capped at 21.2% return.

The notes are protected up to a 10% decline in the basket. If the basket falls below the 10% buffer, the investors will lose 1.1111% for every 1% beyond the buffer the basket falls.

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